Release Date: May 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Zimmer Biomet Holdings Inc (ZBH, Financial) reported a 2.3% growth in first-quarter sales on a constant currency basis, with standout performance in US Hips and mid-single digit growth in S.E.T.
• The company is maintaining its full-year organic constant currency revenue growth expectations of 3% to 5%, excluding the Paragon 28 acquisition.
• Zimmer Biomet Holdings Inc (ZBH) successfully integrated the Paragon 28 acquisition, with the entire US sales channel and senior leadership team joining the company.
• The company is focusing on innovation and diversification, with new product launches such as the Oxford Partial Cementless Knee and the Iodine-Surface-Treated Hip Stem.
• Zimmer Biomet Holdings Inc (ZBH) is committed to operational excellence, optimizing its US sales channel, and expanding its ASC offerings and robotic platforms.

Negative Points

• Zimmer Biomet Holdings Inc (ZBH) updated its 2025 adjusted EPS guidance to $7.90 to $8.10, down from the previous $8.15 to $8.35, due to tariffs and modest dilution from the Paragon 28 acquisition.
• The company faces a $60 million to $80 million headwind from tariffs in 2025, with the majority of the impact expected in the second half of the year.
• Zimmer Biomet Holdings Inc (ZBH) reported a decline in Technology & Data, Bone Cement, and Surgical segments by 3.5% due to tough comps and a mix shift towards ROSA volume-based placements.
• The company's adjusted gross margin and operating margin were lower than the prior year, impacted by higher COGS capitalization, upfront investments, and higher interest expenses.
• Zimmer Biomet Holdings Inc (ZBH) anticipates a reduction in 2025 free cash flow to $750 million to $850 million, down from $1.1 billion to $1.2 billion, due to tariff-related headwinds and one-time costs from the Paragon 28 acquisition.

Q & A Highlights

Q: Can you explain the mitigation efforts for tariffs and why the 2025 run rate isn't a good exit trajectory for 2026 tariffs? A: Suketu Upadhyay, CFO, explained that Zimmer Biomet's production is largely U.S.-based, reducing tariff exposure. Mitigation efforts include optimizing country of origin, transfer pricing, dual sourcing, and reducing discretionary spending. The 2025 tariff impact is estimated at $60 million to $80 million, with most effects in Q4. For 2026, the full-year impact of tariffs, inventory capitalization, and potential retaliatory tariffs are headwinds, while sourcing changes and discretionary spending cuts are tailwinds.

Q: How do you plan to achieve above 5% growth by year-end given the current growth rate? A: Ivan Tornos, CEO, stated that Q1 growth was impacted by one less selling day, effectively making it 3.5% to 4%. Q2 faces tough comps and timing issues in EMEA. However, new product launches in the second half, like Oxford Partial Cementless Knee and Persona Revision in Europe, are expected to drive mid-single-digit growth.

Q: Are the new Z1 Hip users true new customers, and when will new Knee products impact growth? A: Ivan Tornos confirmed that 50% of Z1 Hip users are new customers, not just existing Knee customers. The impact of new Knee products is expected to be visible in Q2, with more significant growth in the second half of 2025.

Q: Is the positive pricing trend sustainable, and how will it affect new product sales? A: Suketu Upadhyay noted that pricing was better than expected in Q1, with a positive 10 basis points. The company anticipates flat pricing for 2025, supported by new product pricing, competitive responses, and improved internal pricing capabilities. The pricing environment is expected to remain stable.

Q: What are the main sources of the tariff headwind, and how are you mitigating it? A: Suketu Upadhyay explained that the main tariff impact comes from China. Mitigation strategies include optimizing country of origin and transfer pricing, sourcing changes, and inventory management. The company is also exploring sourcing from Europe instead of the U.S. for China-bound products.

Q: How is Zimmer Biomet performing in the ASC versus hospital channels? A: Ivan Tornos stated that over 20% of U.S. sales come from ASCs, up from 2%-4% pre-COVID. The company expects ASC sales to grow to 40%-60% in five years. Zimmer Biomet is the leading reconstructive company in ASCs and is growing faster in S.E.T.

Q: Can you elaborate on the sales force optimization and its impact on guidance? A: Ivan Tornos explained that the sales force optimization involves leadership changes, territory adjustments, and incentive plan modifications to improve U.S. Knee performance. These changes are expected to enhance growth without impacting current guidance.

Q: What is Zimmer Biomet's M&A strategy post-Paragon 28 acquisition? A: Ivan Tornos stated that Zimmer Biomet remains open to strategic M&A opportunities, focusing on ASC, S.E.T., and faster-growing orthopedic categories. The company aims to achieve a 5% WAMGR by 2027 and is prepared for responsible acquisitions that align with strategic and financial goals.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.