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Zimmer Biomet (ZBH) Q1 Earnings Top, Revenues Miss Estimates

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Zimmer Biomet Holdings, Inc. (ZBH - Free Report) posted first-quarter 2020 adjusted earnings per share (EPS) of $1.70, which surpassed the Zacks Consensus Estimate by 22.3%. The figure however declined 9.1% year over year.

On a reported basis, the company registered loss of $2.46 per share, a significant decline from the year-ago earnings of $1.20 per share.

A significant year-over-year decline in the company’s first-quarter revenuesand operating margin, negatively impacted by the coronavirus outbreak, resulted in poor earnings performance of Zimmer Biomet.

Revenue Details

First-quarter net sales of $1.78 billion decreased 9.7% (down 8.9% at constant exchange rate or CER) year over year. The figure also missed the Zacks Consensus Estimate by 0.3%. The company noted that the coronavirus pandemic resulted in the deferral of elective procedures during the quarter.

Zimmer Biomet Holdings Inc Price, Consensus and EPS Surprise

 

Zimmer Biomet Holdings Inc Price, Consensus and EPS Surprise

Zimmer Biomet Holdings Inc price-consensus-eps-surprise-chart | Zimmer Biomet Holdings Inc Quote

During the first quarter, sales generated in the Americas totaled $1.10 billion (down 7.7% year over year at CER) while the same in EMEA (Europe, the Middle East and Africa) grossed $398 million (down 11.7% year over year at CER). Asia-Pacific registered 9.5% decline at CER to $285 million.

Segments

Sales in the Knees unit declined 8.3% year over year at CER to $630 million. Hips recorded a 9.7% drop at CER to $433 million. Revenues in the S.E.T. (Sports Medicine, Extremities and Trauma) unit declined 6.5% year over year to $333 million.

Among other segments, Dental, Spine & CMFT(Craniomaxillofacial and Thoracic) dropped 11.8% at CER to $252 million. Other revenues were down 11% to $136 million.

Margins

Gross margin after excluding intangible asset amortization came in at 72.7%, reflecting an expansion of 71 basis points (bps) in the first quarter. Selling, general and administrative expenses increased 4.1% to $828.9 million. Research and development expenses declined 3.2% to $98.4 million. Adjusted operating margin contracted 582 bps to 20.1% during the quarter.

Cash Position

Zimmer Biomet exited the first quarter with cash and cash equivalents of $2.43 billion compared with $617.9 million at 2019 end. Long-term debt at the end of the quarter totaled $7.72 billion, reflecting a rise from $6.72 billion at the end of 2019.

At the end of the first quarter, net cash provided by operating activities was $450.9 million compared with $283.6 million in the year-ago period.

2020 Guidance

Zimmer Biomet expects the decline in elective procedure volumes to intensify in the second quarter of 2020. Given the uncertainty related to the scope and duration of the pandemic and its ongoing impact on the deferral of elective procedures, the company is currently unable to gauge the expected impact on its overall all business in 2020. Accordingly, it did not provide any update on its full-year guidance.

Our Take

Zimmer Biomet ended the first quarter on a dismal note with disappointing sales performances across all operating segments and geographies. The company noted that first-quarter performance was negatively impacted by COVID-19, which reached a pandemic level in March and resulted in a significant and sudden decline in elective procedure volumes across all regions. However, Zimmer Biomet expects its strong fundamentals and capital structure to position it well to overcome the ongoing challenges. However, its expectation of a further decline in elective procedure volumes in the second quarter raises concern.

Zacks Rank and Stocks to Consider

Zimmer Biomet currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space are Aphria Inc. (APHA - Free Report) , Biogen Inc. (BIIB - Free Report) and Eli Lilly and Company (LLY - Free Report) .

Aphria carries a Zacks Rank #2 (Buy) at present. It reported third-quarter fiscal 2020 adjusted EPS of 2 cents against the Zacks Consensus Estimate of a loss of 4 cents. Net revenues of $64.4 million outpaced the consensus estimate by 14.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Biogen currently carries a Zacks Rank #2. It reported first-quarter 2020 adjusted EPS of $9.14, surpassing the Zacks Consensus Estimate by 18.1%. Revenues of $3.53 billion outpaced the consensus mark by 3.2%.

Eli Lilly currently sports a Zacks Rank #1. It delivered first-quarter 2020 EPS of $1.75, outpacing the Zacks Consensus Estimate by 12.9%. Revenues of $145.3 million surpassed the consensus estimate by 6.3%. The company.

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