Earnings Call Insights: Zimmer Biomet Holdings (ZBH) Q1 2025
Management View
- CEO Ivan Tornos highlighted a 2.3% constant currency sales growth for Q1 2025, with strong performance in U.S. Hips, which grew nearly 4%, and mid-single-digit growth in the S.E.T. segment. He emphasized the impact of new product launches, including the Z1 Triple-Taper Hip Stem and OrthoGrid AI surgical guidance system, which have driven competitive account conversions.
- The company reaffirmed its full-year 2025 organic constant currency revenue growth target of 3% to 5% and expects the Paragon 28 acquisition to contribute 270 basis points to overall sales growth.
- CFO Suketu Upadhyay reported Q1 2025 adjusted EPS of $1.81 and free cash flow generation of $279 million. He stated, “Net sales were $1.909 million, an increase of 1.1% on a reported basis and 2.3% excluding the impact of foreign currency.”
Outlook
- Zimmer Biomet updated its 2025 adjusted EPS guidance to $7.90-$8.10 from the previous $8.15-$8.35 range, reflecting the integration of Paragon 28 and anticipated tariff impacts.
- Management expects stronger growth in the second half of 2025 due to favorable comps from ERP disruptions in 2024, new product uptake, and the absence of selling day headwinds.
- Full-year free cash flow guidance has been revised to $750 million to $850 million, factoring in tariff-related headwinds and one-time costs from the Paragon 28 transaction.
Financial Results
- U.S. sales increased by 1.3% in Q1 2025, with nearly 4% growth in Hips and S.E.T.
- International sales grew by 3.7%, driven by mid-single-digit growth in Knees and high-single-digit growth in S.E.T.
- Global Hips and Knees grew by 2.4% and 1.9%, respectively, with S.E.T. reporting 4.9% growth, supported by strong performance in CMFT and Sports segments.
- Adjusted gross margin was reported at 71.5%, while the adjusted operating margin stood at 26.2%.
Q&A
- Robbie Marcus, JPMorgan: Questioned the impact of tariffs on EPS and mitigation efforts. CFO Upadhyay explained, “We have already taken some early steps to mitigate the impact of tariffs,” citing sourcing optimizations and discretionary spending reductions.
- David Roman, Goldman Sachs: Asked about confidence in achieving second-half growth targets. CEO Tornos attributed it to new product launches, including Oxford Partial Cementless Knee and Persona OsseoTi, as well as favorable comps from ERP disruptions.
- Chris Pasquale, Nephron: Inquired about the adoption of Z1 Hip Stem. Tornos confirmed that “50% of Z1 users in the U.S. are conversions from competitive accounts.”
Sentiment Analysis
- Analysts expressed cautious optimism, with concerns centered around tariff impacts and second-half growth execution. Questions often highlighted uncertainties around new product uptake and operational adjustments.
- Management maintained a confident tone, emphasizing robust product pipelines and mitigation strategies for external challenges.
Quarter-over-Quarter Comparison
- Q1 2025 sales growth of 2.3% constant currency was lower than Q4 2024’s nearly 5% growth, reflecting one less selling day and the timing of product launches.
- Adjusted EPS declined from $2.31 in Q4 2024 to $1.81 in Q1 2025, impacted by higher costs and tariff-related factors.
- Free cash flow generation was $279 million in Q1 2025, compared to $403 million in Q4 2024.
Risks and Concerns
- Management noted potential headwinds from global tariffs, which are expected to impact operating profit by $60 million to $80 million in 2025. Mitigation strategies include changes in sourcing and reductions in discretionary spending.
- Analysts highlighted the slower growth in U.S. Knees at 0.2%, with management attributing it to phasing and product launch timelines.
Final Takeaway
Zimmer Biomet’s Q1 2025 earnings call emphasized the company’s focus on driving growth through new product launches and operational efficiencies. While lower EPS guidance reflects tariff impacts and costs associated with the Paragon 28 integration, management remains confident in achieving its full-year revenue and cash flow targets. Analysts remain watchful of execution risks, particularly around U.S. Knees and tariff mitigation strategies.
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