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Zimmer (ZBH) Down 5.6% Since Last Earnings Report: Can It Rebound?

·5-min read

It has been about a month since the last earnings report for Zimmer Biomet (ZBH). Shares have lost about 5.6% 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 Q4 Earnings Miss Estimates, Margins Down

Zimmer Biomet posted fourth-quarter 2021 adjusted earnings per share of $1.95, a penny short of the Zacks Consensus Estimate. The adjusted figure also dropped 7.6% year over year.

The quarter’s adjustments include certain amortization, restructuring, litigation, and loss on early extinguishment of debt-related costs, among others.

On a reported basis, the company registered a loss of 40 cents per share, a significant plunge from earnings of $1.59 a year ago.

Full-year adjusted earnings per share was $7.37, a 29.9% improvement over 2020. However, this too lagged the Zacks Consensus Estimate by a penny. This compares with the company’s earlier-provided adjusted earnings per share guidance range for the full year of $7.32 to $7.47.

Revenue Details

Fourth-quarter net sales of $2.04 billion declined 2.3% (down 0.8% at constant exchange rate or CER) year over year. The figure missed the Zacks Consensus Estimate by 0.6%.

For 2021, net sales were $7.84 billion, an increase of 11.6% over 2020 (up 10.3% at CER). The full-year figure missed the Zacks Consensus Estimate by 0.2%. The company’s expectation of 2021 reported revenue growth was in the range of 11.3% to 12.5%.

Segmental Details

During the fourth quarter, sales generated in the Americas totaled $1.27 billion (down 1.5% year over year at CER) while the same in EMEA (Europe, the Middle East and Africa) grossed $464 million (up 17.3% year over year at CER). Asia-Pacific registered a 17.5% plunge at CER to $308.8 million.

Segments

Sales in the Knees unit edged up 0.4% year over year at CER to $720.1 million. Hips recorded a 2.8% decline at CER to $480.7 million. Revenues in the S.E.T. (Sports Medicine, Extremities, Trauma, Craniomaxillofacial and Thoracic) unit fell 4.3% year over year to $410.5 million.

Among the rest of the segments, Dental & Spine was down 3% at CER to $260.7 million. Other revenues rose 14.1% to $165.9 million.

CMFT (Craniomaxillofacial and Thoracic) products, previously reported in the Dental, Spine & CMFT category, are now included in the S.E.T. category. Meanwhile, the company is progressing with the planned spin-off procedure of the dental & spine arm.The transaction is expected to close on Mar 1, 2022.

Margins

Gross margin, after excluding intangible asset amortization, was 67.5%, reflecting a contraction of 142 basis points (bps) in the fourth quarter. Selling, general and administrative expenses were up 4.5% to $934 million. Research and development expenses rose 13.4% to $113.4 million. Adjusted operating margin contracted 515 bps to 16.1% during the quarter.

Cash Position

Zimmer Biomet exited 2021 with cash and cash equivalents of $478.5 million compared with $802.1 million at 2020 end. Long-term debt at the end of the year totaled $5.46 billion compared with $7.63 billion at the end of the year-ago period.

Cumulative net cash provided by operating activities at the end of 2021 was $1.49 billion compared with $1.20 billion in the year-ago period.

2022 Guidance

Zimmer Biomet provided its financial guidance for 2022.

Revenues are expected to be flat to down 4% compared with 2021.

Adjusted earnings per share for the full year is expected in the range of $6.40-$6.80.

The Zacks Consensus Estimate for 2022 adjusted earnings is pegged at $7.99 on revenues of $8.17 billion (indicating 4% growth over 2021), both ahead of the company’s projection.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Zimmer has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 upward for the stock, and the magnitude of these revisions looks promising. 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, Baxter International (BAX), a stock from the same industry, has gained 1.7%. The company reported its results for the quarter ended March 2022 more than a month ago.

Baxter reported revenues of $3.71 billion in the last reported quarter, representing a year-over-year change of +25.8%. EPS of $0.93 for the same period compares with $0.76 a year ago.

For the current quarter, Baxter is expected to post earnings of $0.88 per share, indicating a change of +10% from the year-ago quarter. The Zacks Consensus Estimate has changed +0% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Baxter. Also, the stock has a VGM Score of B.


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