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



Zimmer Biomet’s earnings

In fiscal 4Q15, Zimmer Biomet Holdings (ZBH) witnessed adjusted diluted EPS (earnings per share) of $2.09. That represented a growth of ~17.4% on a YoY (year-over-year) basis. For fiscal 2015, the company’s adjusted EPS increased ~7.8%. Reported diluted EPS for 4Q15 and 2015, however, declined approximately 84.3% and 98.3% respectively, YoY.

EPS estimates

Zimmer Biomet’s earnings were driven by cost containment measures and operational efficiencies. These happened through cross sales opportunities, highly complementary product portfolios, and other operational synergies from Zimmer’s acquisition of Biomet. The cost-saving initiatives consisted of defined targeted roadmaps to achieve cost efficiencies, including streamlined management, shared sales services, and supply chain optimization.

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Earnings guidance

Zimmer Biomet Holdings (ZBH) is the second largest orthopedics medical device player in the United States, behind Depuy Synthes, a subsidiary of Johnson & Johnson (JNJ). According to Zimmer Biomet’s earnings guidance, its EPS (earnings per share) is expected to be $1.90–$1.95 in 4Q15. For 2016, it estimates EPS to be $7.80–$7.95, which is expected to factor in a negative currency impact of approximately $0.15–$0.16.

Wall Street analysts estimate Zimmer Biomet’s adjusted EPS to be ~$1.93 in 1Q16, representing a huge YoY increase of 30.6%. In addition, substantial completion of commercial integration initiatives related to the Biomet acquisition in 4Q15 is expected to yield significant results in 1Q16 and 2016. Notably, Zimmer Biomet has consistently beaten adjusted EPS consensus estimates for the last several quarters.

Competitor performances

In 4Q15, Zimmer Biomet’s competitors Johnson & Johnson, Stryker (SYK), and Medtronic (MDT) also came in ahead of market expectations. They reported adjusted EPS of $1.44, $1.56, and $0.80, respectively, in the last reported quarter. Zimmer Biomet makes up 0.76% of the total holdings of the Health Care Select Sector SPDR ETF (XLV).


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