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Zimmer (ZBH) Up 1.8% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Zimmer Biomet (ZBH - Free Report) . Shares have added about 1.8% in that time frame, underperforming 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 catalysts.

Zimmer Biomet Q2 Earnings, Revenues Top Eatimates

Zimmer Biomet posted second-quarter 2021 adjusted earnings per share (EPS) of $1.90, beating the Zacks Consensus Estimate by 3.3%. The figure denoted a significant improvement from the year-ago adjusted number of 5 cents.

The quarter’s adjustments include certain R&D agreement expenses, amortization, restructuring, quality remediation, acquisition, integration, and related costs among others.

On a reported basis, the company registered earnings of 67 cents per share against loss of $1.00 a year ago.

Revenue Details

Second-quarter net sales of $2.03 billion were up 65.3% (up 60.7% at constant exchange rate or CER) year over year. The figure exceeded the Zacks Consensus Estimate by 2.3%. Second-quarter net sales increased 1.9% from the second quarter of 2019 (pre-pandemic) level, flat at CER.

Segmental Details

During the second quarter, sales generated in the Americas totaled $1.24 billion (up 68.3% year over year at CER) while the same in EMEA (Europe, the Middle East and Africa) grossed $429.8 million (up 80.5% year over year at CER). Asia-Pacific registered 24.4% rise at CER to $357.5 million.

Segments

Sales in the Knees unit improved 72.2% year over year at CER to $665.6 million. Hips recorded a 39.9% improvement at CER to $476.6 million. Revenues in the S.E.T. (Sports Medicine, Extremities and Trauma) unit increased 53% year over year to $462.1 million.

Among other segments, Dental & Spine rose 69.4% at CER to $263.5 million. Other revenues surged 105.9% to $161.1 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.

Margins

Gross margin, after excluding intangible asset amortization, was 71.3%, reflecting expansion of 593 basis points (bps) in the second quarter. Selling, general and administrative expenses were up 22.9% to $817.4 million. Research and development expenses rose 105.8% to $180.5 million. Adjusted operating margin expanded 1808 bps to 22.1% during the quarter.

Cash Position

Zimmer Biomet exited the second quarter of 2021 with cash and cash equivalents of $1.04 billion compared with $802.1 million at first-quarter end. Long-term debt at the end of the reported quarter totaled $7.85 billion compared with $7.54 billion at the end of the sequentially-last quarter.

Cumulative net cash provided by operating activities at the end of the second quarter was $700.4 million compared with $398.1 million in the year-ago period.

2021 Guidance

This time, the company narrowed its financial guidance for 2021.

Reported revenue growth is expected in the range of 14.5% to 16.5% (from the earlier expectation of 14% to 17%) compared with the last year.
Adjusted EPS for the full year is expected in the range of $7.65 to $7.95 ($7.60 to $8.00).

The Zacks Consensus Estimate for 2021 adjusted earnings is pegged at $7.83 on revenues of $8.10 billion.

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Zimmer has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, 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 D. 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.


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