Third-Quarter Sales Up, EPS Down at Zimmer Biomet

Here comes the payoff. Or the penalty, depending on how the numbers are spun.

Zimmer Biomet Holdings Inc.’s third quarter — its first full one as a combined entity — was an interesting one, to say the least. Sales totaled $1.76 billion, up 59.3 percent on a reported basis but only 0.7 percent on an adjusted “pro forma” constant currency basis. Similarly, net earnings were $22.2 million on a reported basis (a 45.5 percent increase compared with Q3 2014) and 338.4 million on an adjusted basis (an increase of 35.5 percent over the same period last year).

“We are pleased with the achievements of our global teams during Zimmer Biomet’s first quarter as a combined company,” said David Dvorak, Zimmer Biomet president/CEO. “In an operating period marked by significant progress in the execution of our sales channel integration, we generated sequential top-line improvement and strong earnings growth. As we exit this year and progress through 2016, we are well positioned to continue improving revenue growth and delivering on our synergy commitments.”

The company is expected to beat its previously forecast synergy estimates; executives predict net synergies to total roughly $155 million within the first 12 months after the deal’s close (June 2016). Still, volatile exchange rates are projected to limit revenue growth to between 1 percent and 1.5 percent — lower than previously expected. Full-year adjusted earnings per share is projected to range from $6.83 to $6.87.

Naturally, Zimmer Biomet experienced double-digit revenue gains in all of its product categories and geographic regions but the growth didn’t always translate well after adjusting for foreign currency fluctuations. American sales, for example, skyrocketed 77.7 percent on a reported basis to $1.13 billion, but foreign currency volatility turned that particular gain into a 0.7 percent loss. Likewise, American knee sales surged 50.2 percent on a reported basis to $401 million but fell 1.8 percent on an adjusted constant currency basis.

Overall, knee sales jumped 42.5 percent (reported) to $632 million, with Europe, Middle East and Africa (EMEA) generating a 32.4 percent increase (to $134 million) and Asia Pacific proceeds swelling 28.8 percent to $97 million. Total hip sales grew 37.6 percent (reported) to $434 million with North and South America posting the largest increase (60 percent) and EMEA and Asia Pacific trailing with 18 percent and 16.7 percent hikes, respectively. On an adjusted basis, however, American hip sales slipped 1.1 percent (to $240 million) and Asia Pacific revenue slid 0.3 percent (to $77 million).  

S.E.T. (Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma) sales grew 77.8 percent (reported) to $371 million compared with Q3 2014 while denal revenue shot up 91.9 percent to $103 million. On an adjusted basis though, dental sales fell 0.9 percent.

Spine and craniomaxillofacial sales ballooned 189.8 percent to $148 million, rising 0.3 percent on an adjusted basis as well.

“In the quarter, a healthy double-digit growth rate for our craniomaxillofacial and thoracic business was driven by demand for our TraumaOne and SternaLock Blu Systems, as well as growing market acceptance for our recently launched RibFix Blu System,” Dvorak told analysts on an earnings conference call. “Our Spine sales teams continue to prepare to exploit our cross-selling product opportunities, which include the Timberline Lateral Fusion System and the PathFinder NXT Pedicle Screw System. We expect these commercial opportunities will help to offset anticipated sales to synergies inherent in our U.S. spine integration in particular.”