Will Pricing Pressure Hurt Zimmer Biomet (ZBH) Q1 Earnings?

Zimmer Biomet Holdings, Inc. ZBH is set to report first-quarter 2019 results on Apr 26, before the market opens.

The company’s earnings came in line with the Zacks Consensus Estimate in the last reported quarter. However, the metric topped the consensus mark in three of the preceding four quarters, the average beat being 1.54%.

Let’s take a look at how things are shaping up prior to this announcement.

Key Catalysts

Per Zimmer Biomet’s earlier statement, its plan for the current year is strategized with focus laid on the company’s restructuring rather than generating a profit motive. This is a two-year effort to reshape Zimmer Biomet. With this move,the company is trying to leverage its position with durable weighted average market growth by 2020.

Meanwhile with Zimmer Biomet focusing solely on this restructuring initiative, chances are slim for the company to post promising growth performances across its operating segments during any quarter of 2019. The Zacks Consensus Estimate for the first quarter also points in the same direction.

Zimmer Biomet Holdings, Inc. Price and EPS Surprise

Zimmer Biomet Holdings, Inc. Price and EPS Surprise | Zimmer Biomet Holdings, Inc. Quote

The Zacks Consensus Estimate for S.E.T. revenues of $433 million is persistently lower than $443 million, reported in first-quarter 2018.

The Zacks Consensus Estimate for Knee revenues stands at $701 million, down from $713 million reported in the prior-year quarter.

The Zacks Consensus Estimate of $481 million for Hip revenues suggests a 2.2% decline from the year-ago reported number.

Overall, first-quarter total revenues are projected to be $1.97 billion, indicating a 2.5% decline from the year-earlier reported figure.

Currently, Zimmer Biomet is concentrating on the priority areas like quality remediation, supply recovery, patientsafety, quality, integrityand product launches.

In terms of supply recovery, the company made a solid progress of late. In the last reported quarter, the company successfully reduced back orders and increased safety stock levels. Further, to make this progress sustainable, the company started to shift its focus in 2019 from supply stability to initiatives aimed at raising its overall supply chain efficiency.

In terms of quality remediation, the company is currently executing a detailed remediation plan and continues to have constructive communications with the FDA.

Similar to supply recovery, the company within its patientsafety, quality and integrity has also begun altering its focus from quality remediation to building best-in-class quality systems and driving a culture that will ensure sustainability of all such changes throughout the organization. The outcome of these efforts should find reflection in the company’s first-quarter performance.

In terms of product launch, during the quarter under review, the company received a number of regulatory approvals for its robotic surgery product lines. In January, the company received an FDA clearance for the ROSA Knee System with regard to robotically-assisted total knee replacement surgeries. In February, the regulatory agency’s approval came for its ROSA One Brain Application, which is a robotic surgical navigation and positioning system for use in neurosurgical procedures. Again in March, Zimmer Biomet announced the FDA’s 510(k) clearance for the ROSA ONE Spine System pertaining to robotically assisted minimally invasive and complex spine surgeries.

With these three back-to-back product approvals, Zimmer Biomet has now become the first company with 510(k) clearance for Brain, Spine and Knee offerings on a single robotic platform, globally. We expect to see solid top-line contributions from this new product array in the first quarter result.

On the flip side, Zimmer Biomet was grappling with the pricing pressure of approximately (2%) during the fourth quarter. In absence of any favorable changes along these lines in the first quarter, the headwinds might continue to affect the company’s impending quarterly results.