Zimmer Biomet Holdings, Inc. ZBH reported fourth-quarter 2016 adjusted earnings per share (EPS) of $2.14, up 2.4% year over year. Adjusted earnings were ahead of the Zacks Consensus Estimate by 3 cents. On a reported basis, net earnings came in at 33 cents per share, marking a massive 46.8% decline from the year-ago number.
Full-year 2016 adjusted EPS was $7.96, up 15.4% from the year-ago period and also remained ahead of the Zacks Consensus Estimate of $7.94.
Revenue Details
Remaining in line with the company’s preliminary results announced on Jan 10, Zimmer Biomet once again restated its fourth-quarter net revenues at $2.013 billion, marking a 4.1% rise (up 4.4% at an adjusted, constant currency basis) year over year. The recently included LDR Holding contributed 230 basis points (bps) to the top line. Excluding the contribution from LDR Holding and adjusting one less billing day in the quarter, revenues increased 3.5% year over year. Revenues also remained in line with the Zacks Consensus Estimate.
Net sales in 2016 came in at $7.68 billion, up 28.1% year over year (up 3.4% at an adjusted proforma, constant-currency basis).
Zimmer Biomet Holdings, Inc. Price, Consensus and EPS Surprise
Zimmer Biomet Holdings, Inc. Price, Consensus and EPS Surprise | Zimmer Biomet Holdings, Inc. Quote
Revenues generated in the Americas during the quarter touched $1.27 billion (up 5.3% year over year on an adjusted, constant exchange rate or CER). On the other hand, the same in EMEA grossed $444 million (up 1.5%). In the Asia-Pacific, the figure was $301 million (up 5.3%).
Segments
Revenues derived from Knees were up 1.8% year over year on an adjusted CER basis at $721 million. Hips recorded sales of $482 million, up 2.9% from the prior-year quarter. Revenues from S.E.T. (Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma) were up 6.6% year over year to $430 million.
Among the other segments, Spine & CMF recorded an improvement of 29.1% to $191 million while Dental was down 8.6% at $105 million in the quarter. Other revenues dropped 1.3% to $84 million.
Margins
With more than 8% reduction in cost of products sold to $614.9 million, Zimmer Biomet’s gross margin expanded 407 bps to 69.5% in the fourth quarter. Selling, general and administrative expenses were up 4.5% at $756.3 million, while research and development expenses increased a significant 11.4% to $95.7 million. However, adjusted operating margin expanded 361 bps to 27.1%.
Cash Position
Zimmer Biomet exited the year with cash and cash equivalents and short-term investments of $634.1 million, lower than $1.62 billion as of 2015 end. Long-term debt was $10.7 billion, compared with $11.5 billion at the end of the previous year.
Full-year operating cash flow was $1.63 billion compared with $849.8 million in the year-ago period. The company also paid $48.1 million in dividends during the quarter.
2017 Outlook
Zimmer Biomet provided its full-year 2017 guidance. The company expects to register revenue growth at CER in the range of 3.7% to 4.7%. This includes contribution of approximately 120 bps from the LDR transaction. Foreign currency translation is expected to impact revenues by 1.5%. Accordingly, the reported revenue growth is projected in the band of 2.2% to 3.2% or be in a range of $7.855 billion to $7.930 billion for 2017. The current Zacks Consensus Estimate for revenues is pegged at $7.92 billion, close to the upper end of the guided range.
The adjusted EPS expectation range has been forecasted within the range of $8.50−$8.68 for the year. The current Zacks Consensus Estimate for 2017 EPS remains at $8.65, near the upper end of the guided range.
Our Take
Zimmer Biomet ended the year on a positive note with the fourth-quarter adjusted earnings ahead of the Zacks Consensus Estimate and revenues in line with the expectations. Improved top-line show outside the U.S. significantly contributed to the company’s overall performance. While improved Knees encouraged us after a sluggish performance, Dental continues to disappoint.
We look forward to the expected synergy from the LDR Holding acquisition, which should broaden and complement the company's musculoskeletal offering. We are also encouraged by the strong strategic and financial goals which the combined entity expects to reach now that the deal has been closed.
We are also looking forward to the company's recently achieved designation as an Indo UK Institutes of Health (IUIH) preferred orthopaedic partner. The company also reported positive update on its Investigational Device Exemption (IDE) clinical trial assessing the use of autologous concentrated bone marrow aspirate for the treatment of critical limb ischemia.
Zacks Rank & Key Picks
Zimmer Biomet currently has a Zacks Rank #3 (Hold). Some better-ranked medical stocks include Glaukos Corporation GKOS, Cardiovascular Systems CSII and Neogen Corp. NEOG. Glaukos sports a Zacks Rank #1 (Strong Buy) while Cardiovascular Systems and Neogen carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Glaukos gained over 100% in the last one year in comparison to the S&P 500’s gain of only 17.6%. The company has a stellar four-quarter average earnings surprise of over 100%.
Cardiovascular Systems surged over 100% in the last one year in comparison to the S&P 500. It has a four-quarter average earnings surprise of 67.8%.
Neogen gained 22.2% in the past one year, better than the S&P 500’s gain. The stock has an impressive long-term earnings growth of 16.7% for the next five years compared with the industry average of 15.2%.
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