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Zimmer Biomet (ZBH) Q3 Earnings Beat, Gross Margin Falls

Zimmer Biomet Holdings, Inc. ZBH posted third-quarter 2022 adjusted earnings per share (EPS) of $1.58, beating the Zacks Consensus Estimate by 1.3%. The adjusted figure however declined 7.6% year over year.

The quarter’s adjustments included certain amortization, restructuring and quality remediation-related charges, among others.

On a reported basis, the company registered earnings of 92 cents per share, a 19.4% rise from a year ago.

Revenue Details

Third-quarter net sales of $1.67 billion dropped 0.9% (up 5% at constant exchange rate or CER) year over year. The figure beat the Zacks Consensus Estimate by 2.5%.

Geographic Details

During the third quarter, sales generated in the United States totaled $973 million (up 3.2% year over year at CER) while the same in International grossed $696.8 million (up 7.3% year over year at CER).

Segments

In terms of product categories, post the dental and spine arm sell-off, the company continues to report through the remaining four product categories.

Sales in the Knees unit improved 7.2% year over year at CER to $657 million. Hips recorded a 10.5% rise at CER to $468 million. Revenues in the S.E.T. (Sports Medicine, Extremities, Trauma, Craniomaxillofacial and Thoracic) unit declined 2.1% year over year to $409.4 million.

Zimmer Biomet Holdings, Inc. Price, Consensus and EPS Surprise

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

Other revenues fell 0.4% to $135.4 million.

Earlier the company noted that its CMFT (Craniomaxillofacial and Thoracic) products, previously reported in the Dental, Spine & CMFT category, are now included in the S.E.T. category.

Margins

Gross margin, after excluding intangible asset amortization, was 70.8%, reflecting a contraction of 8 basis points (bps) in the third quarter. Selling, general and administrative expenses were down 4.3% to $654.9 million. Research and development expenses rose 8.4% to $101.7 million. Adjusted operating margin expanded 78 bps to 25.5% in the quarter.

Cash Position

Zimmer Biomet exited the third quarter of 2022 with cash and cash equivalents of $545.4 million compared with $386.4 million at the end of the second quarter of 2022.

Cumulative net cash provided by operating activities at the end of the second quarter was $1.11 billion compared with $1.07 billion in the year-ago period.

2022 Guidance

Zimmer Biomet updated its financial guidance for 2022.

Revenues are expected to be flat to up 1% (an improvement from the earlier band of down 1% to up 1%) compared with 2021.

Adjusted EPS guidance for the full year was narrowed to the range of $6.80-$6.90 (from the projection of $6.70-$6.90 earlier).

The Zacks Consensus Estimate for 2022 adjusted earnings is pegged at $6.79 on revenues of $6.84 billion.

Our Take

Zimmer Biomet ended the third quarter of 2022 with better-than-expected earnings and revenues. Each of the company’s geographic segments and product divisions, barring S.E.T. and “Other” recorded year-over-year sales growth at CER. An updated adjusted EPS guidance above the Zacks Consensus Estimate buoys optimism.

Yet, amid the challenging macroeconomic condition, reported revenues and adjusted EPS dropped on a year-over-year basis. However, a contraction in the company’s gross margins is concerning.

Zacks Rank and Key Picks

Zimmer Biomet currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Elevance Health Inc. ELV, Medpace Holdings, Inc. MEDP and Merit Medical Systems, Inc. MMSI.

Elevance Health, carrying a Zacks Rank #2 (Buy), reported third-quarter 2022 adjusted EPS of $7.53, which beat the Zacks Consensus Estimate by 6.1%. Revenues of $39.63 billion outpaced the consensus mark by 1.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Elevance Health has an estimated long-term growth rate of 12%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average being 4.1%.

Medpace Holdings, sporting a Zacks Rank #1, reported third-quarter 2022 EPS of $2.05, which beat the Zacks Consensus Estimate by 39.5%. Revenues of $383.7 million outpaced the consensus mark by 8.1%.

Medpace Holdings has an estimated growth rate of 44.9% for the full-year 2022. MEDP’s earnings surpassed estimates in all the trailing four quarters, the average being 22%.

Merit Medical, flaunting a Zacks Rank #1, reported third-quarter 2022 adjusted EPS of 64 cents, which beat the Zacks Consensus Estimate by 20.8%. Revenues of $287.2 million outpaced the consensus mark by 5.2%.

Merit Medical has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average being 25.4%.


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