Technology

Zimmer (ZBH) Up 3.6% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Zimmer Biomet (ZBH). Shares have added about 3.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Zimmer due for a pullback? 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 drivers.

Zimmer Biomet Gains From Strength in S.E.T. Arm in Q3

Zimmer Biomet posted third-quarter 2019 adjusted earnings per share of $1.77, a penny ahead of the Zacks Consensus Estimate. The figure also improved 8.6% year over year.

On a reported basis, earnings per share came in at $2.08, reflecting a 163.3% surge from 79 cents a year ago.

Revenue Details

Third-quarter net sales of $1.89 billion increased 3% (up 3.9% at constant exchange rate or CER) year over year. The figure also exceeded the Zacks Consensus Estimate of $1.87 billion by 1.1%.

During the quarter under review, sales generated in the Americas totaled $1.18 billion (up 2.3% year over year at CER) while the same in EMEA (Europe, the Middle East and Africa) grossed $375 million (up 4.8% year over year at CER). Asia-Pacific registered 8.8% growth at CER to $338 million.

Segments

Sales in the Knees unit improved 4.9% year over year at CER to $652 million. Hips recorded a 4.3% increase at CER from the prior-year quarter’s $460 million. Revenues in the S.E.T. (Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma) unit rose 6.2% year over year to $438 million.

Among the other segments, Spine & CMF (Craniomaxillofacial)dipped 1.3% at CER to $181 million while Dental inched up 3% to $94 million. Other revenues were down 6.1% to $67 million.

Margins

Gross margin after excluding intangible asset amortization came in at 71.7%, reflecting an expansion of 49 bps in the third quarter. Selling, general and administrative expenses were 5.4% up to $830.1 million. Research and development expenses rose 19.5% to $114.4 million. Adjusted operating margin contracted 132 bps to 21.8% during the quarter.

Cash Position

Zimmer Biomet exited the third quarter with cash and cash equivalents of $512.5 million compared with $403.1 million in the second quarter. Long-term debt at the end of the third quarter totaled $6.35 billion, reflecting a reduction from $6.72 billion in the second quarter.

Year to date, net cash provided by operating activities was $1.16 billion compared with $1.37 billion a year ago.

2019 Guidance Reaffirmed

The company’s prior guidance for 2019 is unchanged, which is as follows:

Sales in 2019 are projected to be flat to up 0.5% compared with the previous year. Earlier, management noted that estimated sales growth figures include an impact of 125-175 basis points from an adverse currency movement.

Adjusted Earnings Per Share for 2019 is expected in the range of $7.75-$7.90.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Zimmer has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 has been net zero. Notably, Zimmer has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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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.

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