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Can Zimmer Biomet Recover after Disappointing 3Q17?

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Part 8
Can Zimmer Biomet Recover after Disappointing 3Q17? PART 8 OF 10

Zimmer Biomet Lowered 2017 Guidance Again amid Major Headwinds

ZBH’s guidance revision

Zimmer Biomet Holdings (ZBH) made a downward revision to its 4Q17 and 2017 guidance in the company’s recent earnings release for 3Q17 on November 1, 2017. The company lowered its guidance for fiscal 2017 for the third time following the downward revisions announced during the company’s 1Q17 and 2Q17 earnings releases in April and July. The SPDR S&P 500 (SPY) rose 0.19% on the day ZBH announced its dismal 3Q17 earnings results. ZBH makes up 0.10% of the total holdings of SPY.

Zimmer Biomet Lowered 2017 Guidance Again amid Major Headwinds

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The major factor triggering a lower outlook is the company’s continued struggle to revive its supply shortfall due to production issues with some of its Biomet legacy brands. Some of the temporary disruptions related to the hurricanes and India’s price cuts have also led to a reduced performance outlook for 2017.

Revised guidance estimates for 2017

Zimmer Biomet Holdings expects to have sales of $7.76 billion–$7.8 billion in 2017. The company’s updated 2017 revenue growth guidance is 1%–1.5%. Foreign exchange is expected to be a tailwind of 0.1%. So the constant currency sales growth for 2017 is expected to be 0.9%–1.4%, including 1.2% of the sales contribution from the LDR acquisition. That can be compared to the company’s previous sales growth guidance for fiscal 2017 of 1.8%–2.7%, or $7.8 billion–$7.87 billion of sales.

Fiscal 2017 adjusted EPS (earnings per share) is estimated at $8.01–$8.07. The previous guidance was $8.20–$8.30. The expected 2017 EPS estimate represents 0.5%–1.5% growth YoY (year-over-year).

Zimmer Biomet Lowered 2017 Guidance Again amid Major Headwinds

4Q17 guidance estimates

In 4Q17, Zimmer Biomet Holdings expects sales of $2.1 billion–$2.5 billion. Excluding 1.8% for currency tailwinds, the sales growth estimate for 4Q17 is -1.8%–0.2% on a YoY basis. On the billing day adjusted basis, the constant currency sales growth is expected to be -2%–0%. Adjusted EPS for the quarter is expected to be $2.08–$2.14.

The company had previously estimated a better supply situation in 4Q17 and thus a better performance in the quarter. Margins in the quarter are also expected to be impacted by the continued impact of increased manufacturing and distribution costs aimed at improving the supply situation at the earliest.

By comparison, peers Intuitive Surgical (ISRG), Stryker (SYK), and Abbott Laboratories (ABT) are estimated to report fiscal 2017 sales of 14.1%, 9.1%, and 30.4%, respectively.

Next, let’s look at the latest analyst recommendations for ZBH stock for the next 12 months.

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