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01/10 16:00
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
Earnings Per Share (EPS) $1.81, down from $1.94 year-over-year due to higher COGS capitalization from 2024, higher upfront investments for new product introductions, higher interest expense, and an FX headwind of about $0.03.
Net Sales $1.909 billion, an increase of 1.1% on a reported basis and 2.3% excluding the impact of foreign currency.
Free Cash Flow $279 million, representing robust growth versus the prior year.
Adjusted Gross Margin 71.5%, lower than the prior year but in line with expectations.
Adjusted Operating Margin 26.2%, lower than the prior year but in line with expectations.
GAAP Diluted EPS $0.91, compared to $0.84 in the prior year, driven by higher sales and lower restructuring charges.
Days on Hand (DOH) Approximately 370 days, reduced by almost 47 days compared to Q1 2024.
Cash and Cash Equivalents Approximately $1.4 billion, which includes proceeds from debt issuance to support the acquisition of Paragon 28.
Adjusted Tax Rate 18.2%, consistent with prior year.
Fully Diluted Shares Outstanding 199.7 million, down year-over-year due to share repurchases.
Adjusted Net Interest and Non-Operating Expenses $59 million, above the prior year, driven by higher debt and higher interest rates on refinance debt.
Tariff Impact on Operating Profit $60 million to $80 million headwind anticipated in 2025, with the majority of the impact in the second half of the year.
2025 Free Cash Flow Projection $750 million to $850 million, down from $1.1 billion to $1.2 billion due to tariff-related headwinds and one-time costs associated with the Paragon 28 acquisition.
New Product Launches: Launched the Z1 Triple-Taper Hip Stem, HAMMR surgical impactor, and OrthoGrid AI-driven surgical guidance system, contributing to nearly 4% growth in U.S. Hips.
Cementless Knee Products: Expecting growth from Persona OsseoTi and Oxford Partial Cementless Knee, with over 25% penetration in the U.S.
Iodine-Surface-Treated Implants: Launching the first iodine-surface-treated HIP System in Japan, aimed at preventing infections.
Oxford Partial Cementless Knee: Recent PMA approval allows access to a Partial Knee backed by robust clinical data, with training for several hundred customers.
Market Expansion: Acquisition of Paragon 28 completed, expected to contribute 270 basis points to sales growth in 2025.
International Growth: International sales grew 3.7%, driven by mid-single digit growth in Knees and high-single digit growth in S.E.T.
Operational Efficiencies: Reduced days on hand from over 400 to approximately 370, improving inventory management.
Sales Channel Optimization: Changes to optimize U.S. sales channel and specialization of S.E.T field team.
Strategic Priorities: Focus on people and culture, operational excellence, innovation, and diversification.
Leadership Changes: New leaders added in strategy, innovation, business development, and communications.
Tariff Impact: Anticipated $60 million to $80 million headwind to operating profit in 2025, primarily in the second half of the year.
Foreign Exchange (FX) Impact: Recent weakening of the U.S. dollar expected to provide a flat to 50 basis point tailwind in 2025.
Acquisition Dilution: Modest dilution of less than 3% from the Paragon 28 acquisition, impacting adjusted EPS guidance.
Operational Challenges: Ongoing changes in U.S. sales channel and leadership to optimize performance amid competitive pressures.
Economic Factors: Shifts in discretionary spending expected to impact revenue growth.
Free Cash Flow Reduction: Projected free cash flow of $750 million to $850 million, down from previous estimates due to tariff-related headwinds and one-time costs from the Paragon 28 acquisition.
Market Growth Rate: Current Weighted Average Market Growth Rate (WAMGR) is around 4% to 4.25%, with aspirations to achieve 5% by 2027.
Strategic Priorities: Zimmer Biomet's strategic priorities include focusing on people and culture, operational excellence, and innovation and diversification. They are enhancing leadership roles and optimizing the U.S. sales channel.
Acquisition of Paragon 28: The acquisition of Paragon 28 was completed on April 21, 2025, and is expected to contribute 270 basis points to sales growth in 2025.
Innovation Focus: The company is addressing unmet needs in musculoskeletal health through initiatives like the 'You’ll Be Back' campaign and technology to prevent infections.
2025 Revenue Growth: Zimmer Biomet maintains its full year organic constant currency revenue growth expectations of 3% to 5%, excluding Paragon 28.
Adjusted EPS Guidance: The adjusted EPS guidance for 2025 is updated to $7.90 to $8.10, down from $8.15 to $8.35.
Free Cash Flow Projection: Free cash flow for 2025 is projected to be $750 million to $850 million, down from previous estimates due to tariff-related headwinds and acquisition costs.
Tariff Impact: The anticipated tariff headwind for 2025 is estimated at $60 million to $80 million, primarily affecting the second half of the year.
Operating Margin Expectations: Full year adjusted operating margins are expected to decline by approximately 100 to 150 basis points compared to 2024.
Share Repurchase Program: Executed $230 million in share repurchases during the quarter.
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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