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01/10 16:05
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary presents mixed signals. While there are positive elements like raised EPS guidance and new product launches, concerns arise from declining operating margins and uncertainties in international markets. The Q&A reveals cautious management responses, a choppy U.S. revision market, and market share loss in U.S. knees. Although optimistic guidance and potential premium pricing for iodine-coated implants are positive, the lack of specific guidance for 2026 and cautious capital allocation strategy tempers expectations. Overall, the sentiment is neutral, with potential upside from innovation and strategic acquisitions.
Sales Growth 5% on an organic constant currency basis, with U.S. business accelerating 330 basis points sequentially to 5.6% from 2.3% in the second quarter. This is the best revenue growth performance in the U.S. since mid-2023. However, growth was impacted by nearly 120 basis points due to unexpected weakness in Eastern Europe, Latin America, and non-core segments of S.E.T.
Knees Growth 3.5% in the U.S., up 180 basis points from 1.7% in the second quarter of 2025. This was driven by adoption of Persona OsseoTi (cementless total knee) and Oxford (partial cementless knee). Persona OsseoTi now represents nearly 30% of U.S. total knee implants.
Technology and Data, Bone Cement, and Surgical Sales Increased 20.3% in the U.S., driven by the strongest robotics capital sales quarter in more than a year. Utilization of U.S. ROSA accounts increased, with over half of knee implants now performed robotically, up 400 basis points year-over-year.
Hips Growth 4% in the U.S., driven by the Z1, HAMMR, and OrthoGrid products. Z1 accounted for over 25% of hip stems in the third quarter, and HAMMR utilization rates doubled to 20% through the first 9 months of the year.
S.E.T. Business Growth 6.4% in the U.S., up over 250 basis points sequentially from 3.9% in the second quarter of 2025. Growth was driven by new product launches, despite weakness in restorative therapies.
CMFT (Craniomaxillofacial Thoracic) Growth Over 20% globally, driven by new product introductions in rib trauma, cardiac surgery, and neuroablation.
Adjusted Earnings Per Share (EPS) $1.90, up 9.2% year-over-year, despite dilution from the Paragon 28 transaction, tariffs, and commercial investments.
Adjusted Gross Margin 72.6%, higher than the third quarter of 2024, due to lower manufacturing costs and favorable mix.
Adjusted Operating Margin 26.5%, modestly higher than the prior year, driven by better gross margin, partially offset by increased commercial investments and the addition of Paragon 28.
Free Cash Flow $278 million for the quarter, bringing year-to-date free cash flow to about $800 million. Days of inventory on hand reduced by 10 days compared to the third quarter of 2024.
Persona OsseoTi and Oxford Knees: Persona OsseoTi now represents nearly 30% of U.S. total knee implants, with expectations to exceed 50% penetration by 2027. Oxford partial cementless knee is performing above internal expectations.
Robotics and Navigation: Strongest robotics capital sales quarter in over a year. U.S. ROSA accounts now perform over half of knee implants robotically, up 400 basis points for the year.
Z1, HAMMR, and OrthoGrid for Hips: Z1 accounted for over 25% of hip stems in Q3. HAMMR utilization rates doubled to 20% in the first 9 months of 2025.
CMFT (Craniomaxillofacial Thoracic): Business grew over 20% due to new product introductions in rib trauma, cardiac surgery, and neuroablation.
Monogram Technologies Acquisition: Acquired mBôs, an AI-driven orthopedic robotic system. Clinical protocols started in July, with semi-autonomous robot launch expected in early 2027.
U.S. Market Growth: Sales grew 5.6% in Q3, driven by new product adoption and strong robotic placements.
International Market Challenges: Emerging markets and non-core segments like restorative therapies faced headwinds, impacting growth by over 100 basis points.
Inventory Management: Reduced days of inventory on hand by 10 days compared to Q3 2024, despite higher inventory levels from Paragon 28.
Free Cash Flow: Generated $278 million in Q3, bringing year-to-date free cash flow to $800 million.
Adjusted EPS: Delivered $1.90 in Q3, up 9.2% year-over-year, despite dilution from Paragon 28 and tariff impacts.
Leadership Changes: New leadership in international businesses and U.S. restorative therapies to address headwinds.
Sales Force Specialization: Focused on robotics and S.E.T. categories, with new sales leadership for ASCs and key account management.
Innovation and Diversification: Launched iodine-treated hip in Japan and next-gen foot and ankle products from Paragon 28. Over 20 new S.E.T. products planned.
Emerging Markets Performance: Weakness in emerging markets, particularly in Eastern Europe and Latin America, negatively impacted growth by over 100 basis points in Q3 2025. Challenges in these regions are being addressed but remain a headwind for the company's performance.
Restorative Therapies Segment: Continued weakness in the restorative therapies segment has been a significant drag on growth, with a low teens decline reported globally. This segment's underperformance is factored into the updated guidance for 2025.
U.S. Revision Market: A modest slowdown in the U.S. revision market for both hips and knees is expected to persist throughout the remainder of 2025, impacting revenue growth.
International Leadership and Governance: Leadership and governance changes are being made in some international businesses to address ongoing headwinds in these geographies, indicating operational challenges.
Tariff Impacts: The company faces a $40 million tariff headwind for 2025, which is impacting operating margins.
Inventory Management: Efforts to reduce days of inventory on hand are ongoing, but higher inventory levels associated with acquisitions like Paragon 28 present challenges to free cash flow.
Interest Expenses: Higher interest expenses due to the Paragon 28 acquisition and increased interest rates are impacting financial performance.
2025 Organic Constant Currency Revenue Growth: Updated to a range of 3.5% to 4% from the previous 3.5% to 4.5% range. This excludes the contribution from Paragon 28. The updated range considers continued weakness in restorative therapies, a more measured outlook for certain international emerging markets, and a modest slowdown in the U.S. revision market for hips and knees persisting throughout 2025.
Adjusted EPS Guidance for 2025: Maintained at $8.10 to $8.30.
Free Cash Flow Guidance for 2025: Maintained at $1 billion to $1.2 billion.
Consolidated Pricing for 2025: Expected to remain roughly flat for the full year.
FX Impact on 2025 Revenue: Expected to contribute 50 to 100 basis points of growth in 2025.
Paragon 28 Contribution to 2025 Revenue: Expected to contribute around 270 basis points to reported sales growth in 2025.
Adjusted Net Interest and Nonoperating Expenses for 2025: Expected to be approximately $280 million, down from $290 million due to lower borrowings on better cash flow.
Adjusted Tax Rate for 2025: Expected to be approximately 18% for the full year.
Fully Diluted Shares Outstanding for 2025: Expected to be approximately 200 million shares.
New Product Launches and Innovation: Plans to launch the world's first semi-autonomous robot with Persona implants in early 2027, followed by a fully autonomous platform by the end of 2027 or early 2028. Over 20 new products in S.E.T. are planned over the strategic horizon, addressing safety, efficiency, and clinical outcomes.
Operational Excellence Initiatives: Focus on accelerating revenue growth, improving margins, and increasing free cash flow through inventory management. Days of inventory on hand reduced by 10 days compared to Q3 2024.
Dividend Program: No specific mention of a dividend program was made during the conference call.
Share Repurchase: The company mentioned a lower share count due to share repurchases in 2024 and in the first quarter of 2025. This indicates that Zimmer Biomet has been actively repurchasing shares as part of its capital allocation strategy.
The earnings call summary presents mixed signals. While there are positive elements like raised EPS guidance and new product launches, concerns arise from declining operating margins and uncertainties in international markets. The Q&A reveals cautious management responses, a choppy U.S. revision market, and market share loss in U.S. knees. Although optimistic guidance and potential premium pricing for iodine-coated implants are positive, the lack of specific guidance for 2026 and cautious capital allocation strategy tempers expectations. Overall, the sentiment is neutral, with potential upside from innovation and strategic acquisitions.
The earnings call reveals mixed signals. While there are positive aspects like the acquisition of Paragon 28, strong July performance, and optimism about Monogram's technology, there are concerns about reduced EPS guidance, tariff impacts, and declining operating margins. The Q&A section shows confidence in growth but lacks specific guidance for 2026. The neutral sentiment reflects these balanced positive and negative factors.
The earnings call reflects several concerns: ongoing operational challenges, economic factors affecting revenue growth, and a significant tariff impact on profits. Despite new product launches and share repurchases, the guidance for free cash flow and EPS has been lowered. The Q&A section highlights uncertainties regarding tariff mitigation and sales force reorganization. These factors, combined with modest acquisition dilution and a cautious market outlook, suggest a likely negative stock reaction in the near term.
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