Zimmer Biomet (ZBH) Q4 Earnings Meet Estimates, Sales Beat (Revised)

Zimmer Biomet Holdings, Inc. (NYSE:ZBH) reported fourth-quarter 2017 adjusted earnings per share of $2.10, down 1.9% year over year but in line with the Zacks Consensus Estimate. Reportedly, net earnings came in at $6.16 compared with the year-ago quarter’s 34 cents. Notably, reported net earnings include a one-time tax benefit of approximately $6.40 from the recently-enacted U.S. tax reform legislation.

Full-year 2017 adjusted earnings per share came in at $8.03, in line with the Zacks Consensus Estimate. However, the figure beat the year-ago number by 0.9%.

Revenue Details

Fourth-quarter net sales came in at $2.07 billion, marking a 3% increase (up 1.5% at constant exchange rate or CER) year over year. Net sales also surpassed the Zacks Consensus Estimate of $2.03 billion.

Net sales in 2017 totaled $7.82 billion, surpassing the Zacks Consensus Estimate of $7.78 billion. The figure also beat the year-ago number by 1.8%.Full-year sales increased 0.5% over the prior year at CER, excluding approximately 130 basis points of contribution from the LDR Holding Corporation acquisition.

During the quarter, sales generated in the Americas were $1.28 billion (up 0.8% year over year at CER), while the same in EMEA (Europe, the Middle East and Africa) grossed $473 million (down 0.3%). Asia-Pacific, however, registered 7.2% growth at CER to $321 million.

Segments

Sales at Knees were down 0.1% year over year at CER to $731 million. Hips recorded an increase of 1.6% at CER from the prior-year quarter to $499 million. Revenues from S.E.T. (Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma) were up 4.6% year over year to $454 million.

Among the other segments, Spine & CMF recorded a marginal improvement of 0.5% at CER to $194 million, while Dental was down 0.4% to $108 million in the quarter. Other revenues increased 2.9% to $88 million.

Margins

Gross margin came in at 71.5%, reflecting an expansion of 238 bps in the fourth quarter. Selling, general and administrative expenses were up 1.9% to $770.6 million. However, research and development expenses declined 0.7% to $95 million. Adjusted operating margin expanded 297 bps to 29.8% during the quarter.

Cash Position

Zimmer Biomet exited the year 2017 with cash and cash equivalents of $524.4 million, as compared with $480.8 million at the end of the third quarter. Total long-term debt was $10.1 billion, compared with $10.4 billion at the end of the preceding quarter.

For the full year, operating cash flow was $1.58 billion, compared with $1.63 billion in the year-ago period. The company also paid $48.6 million in dividends during the fourth quarter.

2017 Outlook

The company has issued first-quarter 2018 guidance. Sales are projected in the range of $1.955 billion to $1.995 billion, representing a change of negative 1% to positive 1%, and negative 4% to negative 2% on a constant currency basis compared to the prior-year quarter. This is inclusive of the negative impact related to approximately one less billing day as compared to the year-earlier quarter. The current Zacks Consensus Estimate of $2 billion lies above the guided range.

Adjusted EPS for the quarter is expected to remain in the band of $1.84 to $1.91. The Zacks Consensus Estimate of $2.01 remains above the guided range.

Our Take

Zimmer Biomet ended the quarter on a positive note. We are also encouraged by the company’s consistent efforts in product and renovation through research and development. We are optimistic about synergies from the LDR Holding acquisition, which should broaden and complement the company’s musculoskeletal range. We are also impressed by the strong strategic and financial goals which the combined entity expects to reach.

However, we are disappointed by the company’s declining sales at its Knees segment at CER.

Zacks Rank & Key Picks

Zimmer Biomet has a Zacks Rank #4 (Sell). A few better-ranked stocks in the broader medical sector are ResMed (NYSE:RMD) , PerkinElmer (NYSE:PKI) and Accuray (NASDAQ:ARAY) . All the three companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ResMed posted second-quarter fiscal 2018 adjusted earnings per share of $1, up 36.9% from the prior-year quarter. Revenues in the reported quarter increased 13.4% year over year (up 11% at constant exchange rate or CER) to $601.3 million.

PerkinElmer reported fourth-quarter 2017 adjusted earnings per share of 97 cents. Adjusted revenues were approximately $641.6 million, surpassing the year-ago quarter’s $567 million.

Accuray reported a loss of 6 cents per share in the second quarter of fiscal 2018, 5 cents narrower than the year-ago figure. Total revenues in the second quarter increased 15% year over year to $100.3 million.

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(We are reissuing this article to correct a mistake. The original version, published earliertoday, should no longerbe relied upon.)