A month has gone by since the last earnings report for Zimmer Biomet (ZBH). Shares have lost about 3.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Zimmer due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Zimmer Biomet Q2 Earnings Beat Estimates, Operating Margin Contracts
Zimmer Biomet posted second-quarter 2024 adjusted earnings per share of $2.01, exceeding the Zacks Consensus Estimate by 1.5%. The adjusted figure increased 10.4% year over year.
The quarter’s adjustments included certain amortization, restructuring and other cost reduction initiatives and European Union Medical Device Regulation-related charges, among others.
On a reported basis, the company registered earnings of $1.18 per share, which reflected an 18% improvement from the year-ago figure.
Revenue Details
Second-quarter net sales of $1.94 billion increased 3.9% (up 5.6% at constant exchange rate or CER) year over year. The figure came in line with the Zacks Consensus Estimate.
Geographic Details
During the second quarter, sales generated in the United States totaled $1.11 billion (up 3.5% year over year), while International sales grossed $835.8 million (up 8.5% year over year at CER).
Our model projected 3.8% revenue growth for the United States and 4.2% growth at CER for the International arm in the second quarter.
Segments
The company currently reports through four product categories — Knees, Hips, S.E.T. (Sports Medicine, Extremities, Trauma, Craniomaxillofacial and Thoracic) and Other.
Sales in the Knees unit improved 5.5% year over year at CER to $801.1 million. Our model estimate was pegged at $792.7 million.
Hips recorded 2.8% growth in the second quarter at CER to reach $506.5 million. Our model estimate was $516.9 million for the same.
Revenues in the S.E.T. unit were up 7.3% year over year at CER to $469.5 million. Our model estimate was $478 million.
Other revenues increased 11.3% to $164.9 million at CER in the second quarter. Our model estimate was $154.6 million.
Margins
Adjusted gross margin, after excluding the impact of intangible asset amortization, was 71.5%, reflecting a contraction of 40 basis points (bps) in the second quarter. Selling, general and administrative expenses rose 1.6% to $737.1 million. Research and development expenses declined 7.4% to $109.4 million. Adjusted operating margin expanded 115 bps to 27.9% in the quarter.
Cash Position
Zimmer Biomet exited the second quarter with cash and cash equivalents of $420.1 million compared with $393 million at the end of the first quarter.
Cumulative net cash provided by operating activities at the end of the second quarter was $597.4 million compared with $655.6 million in the year-ago period.
2024 Guidance
Zimmer Biomet updated its financial guidance for 2024.
Reported revenue growth is expected to be in the band of 4 year over year (a decline from the earlier band of 4.5%-5.5%). The company currently expects foreign exchange to have an adverse impact of 1% (0.5% adverse impact projected earlier) on revenues.
Adjusted earnings per share expectation for the full year is unchanged in the range of $8.00-$8.15.
The Zacks Consensus Estimate for 2024 adjusted earnings per share is pegged at $8.10 on revenues of $7.75 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -5.23% due to these changes.
VGM Scores
Currently, Zimmer has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Zimmer has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Zimmer is part of the Zacks Medical - Products industry. Over the past month, Agios Pharmaceuticals (AGIO), a stock from the same industry, has gained 0.6%. The company reported its results for the quarter ended June 2024 more than a month ago.
Agios Pharmaceuticals reported revenues of $8.62 million in the last reported quarter, representing a year-over-year change of +28.5%. EPS of -$1.69 for the same period compares with -$1.51 a year ago.
Agios Pharmaceuticals is expected to post earnings of $0.05 per share for the current quarter, representing a year-over-year change of +103.1%. Over the last 30 days, the Zacks Consensus Estimate has changed +106.3%.
Agios Pharmaceuticals has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
