Zimmer Biomet Expects Growth in Sales, Weaker Revenues in 2016

Zimmer Biomet: How's This Double-Headed Giant Doing?

(Continued from Prior Part)

Overview

Zimmer Biomet Holdings (ZBH) generates approximately 63% of its revenue from its reconstructive business segment. The segment consists of its leading portfolio of knee and hip implants and ~20% of its revenues from the SET (Surgical, Sports Medicine, Extremities, and Trauma) segment. The rest of the company’s revenue comes from its Dental Implants and Related Surgical Products segment and Spine & CMF (Craniomaxillofacial and Thoracic) category.

Wall Street analysts have estimated that the company’s 1Q16 revenues will be about $1.9 billion, which would represent a rise of around 65.4% on a YoY (year-over-year) basis compared to ~58.1% YoY revenue growth in the last quarter. It’s further estimated that the company will witness 58.8% YoY revenue growth in fiscal 2Q16.

Fiscal 2015 performance

Zimmer Biomet reported revenues of ~$6 billion in 2015, representing a growth of ~28.3% on a YoY basis. But the adjusted pro forma growth was ~1% against 3.8% in 2014. Adjusted pro forma revenues reflect the impact of previously announced divestitures and the Biomet revenue inclusion.

Fiscal 2015 revenues failed to meet company guidance of 1.5%–2% growth as well as analyst estimates. The weak revenue growth was primarily due to integration costs related to the acquisition of Biomet by Zimmer Holdings in June 2015 and the continued impact of currency headwinds. Additionally, pricing pressures in the healthcare industry and intense competition impacted its revenues in 2015. They’re also expected to have a significant impact on 2016 revenues, although less pronounced.

For fiscal 4Q15, Zimmer Biomet reported revenues of ~$1.9 billion. That represented an adjusted pro forma growth of ~0.5% YoY and included a negative currency impact of approximately 4.4%.

Company guidance

Zimmer Biomet has forecast that its 1Q16 YoY sales will decrease 1.5%–2%, weighed down by a negative foreign exchange impact of ~2.5%. For 2016, adjusted pro forma revenue growth is expected to be -0.5%–0.5%, which includes a negative currency impact of ~2%.

Zimmer Biomet’s major competitors in the United States are Stryker (SYK), Johnson & Johnson (JNJ), and Medtronic (MDT). These companies are expected to register YoY revenue growth of about 4%, 0.5%, and 2.4%, respectively, in the next quarter.

For diversified exposure to Zimmer Biomet, you can invest in the SPDR S&P 500 ETF (SPY), which holds approximately 0.11% of its total portfolio holdings in ZBH.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Zimmer Biomet: A Look at Its Latest Valuation

• Part 3 - Cost-Cutting Drove Zimmer Biomet’s Earnings and Sustained Margins

• Part 4 - Zimmer’s Big Ticket Acquisition of Biomet