It has been about a month since the last earnings report for Zimmer Biomet (ZBH). Shares have added about 7% 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 catalysts.
Zimmer Biomet Q3 Sales Up on Global Growth in U.S.
Zimmer Biomet posted third-quarter 2020 adjusted earnings per share of $1.81, beating the Zacks Consensus Estimate by 72.4%. The figure increased 2.3% year over year.
The quarter’s adjustments include certain amortization, restructuring, acquisition, integration and relatedcosts among others.
On a reported basis, the company registered earnings of $1.16 per share compared with the year-ago earnings of $2.08 per share.
Revenue Details
Third-quarter net sales of $1.93 billion improved 2% (up 1.1% at constant exchange rate or CER) year over year. The figure also exceeded the Zacks Consensus Estimate by 12.5%. The company noted that there was stronger-than-expected recovery of elective procedures in the third quarter.
However, the pace of procedure volume and patient returns slowed toward the end of the quarter with overall performance still negatively impacted by the pandemic.
During the third quarter, sales generated in the Americas totaled $1.22 billion (up 3.3% year over year at CER) while the same in EMEA (Europe, the Middle East and Africa) grossed $366.2 million (down 5.7% year over year at CER). Asia-Pacific registered 0.7% rise at CER to $346.6 million.
Segments
Sales in the Knees unit declined 1.4% year over year at CER to $648.7 million. Hips recorded a 4.4% rise at CER to $484.1 million. Revenues in the S.E.T. (Sports Medicine, Extremities and Trauma) unit increased 2.5% year over year to $359.9 million.
Among other segments, Dental, Spine & CMFT (Craniomaxillofacial and Thoracic) rose 6.5% at CER to $295.5 million. Other revenues were down 11.1% to $141.1 million.
Margins
Gross margin, after excluding intangible asset amortization, came in at 70.5%, reflecting a contraction of 121 basis points (bps) in the third quarter.
Selling, general and administrative expenses declined 4.4% to $790 million. Research and development expenses declined 24.9% to $85.9 million.
Adjusted operating margin expanded 311 bps to 25.1% during the quarter.
Cash Position
Zimmer Biomet exited the third quarter with cash and cash equivalents of $967.3 million compared with $713.4 million at second-quarter end. Long-term debt at the end of the quarter totaled $7.84 billion, reflecting a decline from $8.21 billion at the end of the second quarter.
Cumulative net cash provided by operating activities at the end of the third quarter was $779.4 million compared with $1.16 billion in the year-ago period.
2020 Guidance
According to Zimmer Biomet, although it has seen encouraging recovery in elective procedures in the third quarter, there continues to be uncertainty around the scope and duration of COVID-19 and its ongoing impact. Accordingly, it did not provide any guidance for the fourth quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 5.86% due to these changes.
VGM Scores
At this time, Zimmer has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, 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 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.
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Zimmer Biomet Holdings, Inc. (NYSE:ZBH): Free Stock Analysis Report
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