{"id":25889,"date":"2016-01-27T15:32:53","date_gmt":"2016-01-27T21:32:53","guid":{"rendered":"http:\/\/news.medill.northwestern.edu\/chicago\/?p=25889"},"modified":"2016-01-27T15:32:53","modified_gmt":"2016-01-27T21:32:53","slug":"analysts-predict-strong-earnings-for-zimmer-biomet-post-acquisition","status":"publish","type":"post","link":"https:\/\/news.medill.northwestern.edu\/chicago\/analysts-predict-strong-earnings-for-zimmer-biomet-post-acquisition\/","title":{"rendered":"Analysts predict strong earnings for Zimmer Biomet post-acquisition"},"content":{"rendered":"

By Sarah Very<\/strong><\/p>\n

The hub of orthopedic innovation exists in Lilliputian, quaint Warsaw, Ind. \u2014 where news of corporate mergers and artificial joints fills radio broadcasts and coffee shop smalltalk.<\/p>\n

On June 24, 2015, Zimmer Inc. acquired crosstown rival Biomet Inc. for $13.35 billion \u2014 positioning Zimmer Biomet Holdings Inc. as the second largest company by revenue in the $45 billion musculoskeletal industry. Despite sluggish third quarter revenues, analysts expect solid growth for Warsaw\u2019s newest amalgamation in 2016.<\/p>\n

A majority of analysts surveyed by Bloomberg \u2014 21 out of 30 \u2014 rate Zimmer Biomet stock a buy based on expected merger synergies and an increasingly aging and overweight population in need of artificial limbs and implants. In a press release, the company reported anticipated net annual synergies of $135 million in the 12 months post-acquisition.
\n<\/p>\n

Zimmer Biomet\u2019s stock has been relatively stable over the past year, closing at $101.74 on Jan. 26, 2016. According to analyst Jeffrey D. Johnson of Robert W. Baird & Co. Inc., \u201cthe market has been too worried about sales force integration risks\u201d following the Biomet acquisition.<\/p>\n

\u201cThe integration of Biomet has been proceeding well over the past six months,\u201d said Johnson in an e-mail. \u201cWe have a target price of $123 on Zimmer Biomet” \u2014 only slightly up from the 52-week high of $121.84, but well above the current price of $101.74.<\/p>\n

The company reported net sales of $1.76 billion in the third quarter \u2014 its first quarter as a joined entity. This was up 59.3 percent from Zimmer’s\u00a0$1.11 billion in the year-earlier quarter, but only\u00a0a 0.7 percent increase on a pro forma basis.<\/p>\n

Quarterly Sales of Zimmer and Zimmer Biomet (in billions)<\/h2>\n

[field name=”chart1″]<\/p>\n

According to the company, sales, though sluggish recently, will benefit from cross-selling of products and more efficient R&D. (Sarah Very\/MEDILL)<\/div>\n

On the other hand, earnings were slashed by acquisition expenses. Net income dropped 87.2 percent to $22.2 million from $173.1 million. The company reported 11 cents diluted earnings per share, down from $1.01.<\/p>\n

According to Zacks most recent research report on Zimmer Biomet, the merger will contribute 95 cents to $1.05 to post-acquisition earnings per share in the first year. Analysts at Baird see the company achieving 14 percent earnings per share growth in 2016, with the firm\u2019s $7.84 projection just above the current consensus estimate of $7.82.<\/p>\n

Key Financial Statistics for the Quarters Ended Sept. 30, 2015 and 2014<\/h2>\n

[field name=”chart2″]<\/p>\n

2014-2015 comparison of revenue, net income and diluted earnings per share for Zimmer Biomet. (Sarah Very\/MEDILL)<\/div>\n

Analysts predict that rising 2016 revenues will come in part from salesforce cross-training and an expanded product portfolio, including four legacy Zimmer product categories \u2014 knees, hips, spine and dental \u2014 and a newly defined product category, S.E.T., devoted to sports medicine, surgical, extremities and trauma products, the last a Biomet strength.<\/p>\n

The trauma product category comprises medical plates, screws and nails to aid traumatologists and general orthopedic surgeons in addressing a wide variety of fractures. The Zimmer Natural Nail Cephalomedullary Nails, for example, are available in different diameters and shapes anatomically similar to bones in the human skeleton to restore bone shape.<\/p>\n

Before the acquisition, Zimmer\u2019s most competitive offerings included the legacy Zimmer Persona Knee and the APEX Spine System. Biomet’s product portfolio focused on extremities and trauma products, one of its key devices being the Vanguard XP Total Knee System. According to a report by Morningstar analyst Debbie Wang, \u201cmore than half of Zimmer Biomet\u2019s revenue is expected to yield from more mature hip and knee implants,\u201d though spine products have contributed the largest percent increase.<\/p>\n

Net Sales by Product Category for the Quarters Ended Sept. 30, 2015 and 2014<\/h2>\n

[field name=”chart3″]<\/p>\n

Most of Zimmer Biomet’s revenue comes from knee and hip products, though the company has seen growth across all product categories. Source: Zimmer Biomet Inc. (Sarah Very\/MEDILL)<\/div>\n

Despite optimism arising from Zimmer Biomet\u2019s acquisition synergies and product innovation goals, analysts attribute the company\u2019s slow revenue growth to negative pricing trends in orthopedics and unfavorable currency translations\u00a0due to\u00a0the strong dollar.<\/p>\n

\u201cPricing is particularly challenging for orthopedics because there are few high-quality studies to demonstrate improved outcomes stemming from technological innovation, which is what payers now demand to secure premium pricing,\u201d wrote Wang. \u201cAs an orthopedic pure-play, Zimmer Biomet has less flexibility to rely on other sources of growth and must face this challenge squarely.\u201d Wang added that this dynamic could be the source of Zimmer\u2019s relatively flat quarterly sales of hips and knees.<\/p>\n

Analysts at Zacks state that Zimmer Biomet will need to \u201cconstantly introduce or acquire new products to withstand the competitive pressure and retain market share\u201d in the increasingly tight orthopedic industry, with competitors like Johnson & Johnson\u2019s DePuy Orthopaedics Inc. just down the road in Warsaw.<\/p>\n

Zimmer Biomet\u2019s extensive global business operations have had both a positive and negative tug on the company\u2019s bottom line. Zimmer Biomet has operations in more than 25 countries around the world and sells products in over 100. According to a company press release from a recent J.P. Morgan Healthcare Conference, 60 percent of Zimmer\u2019s sales stem from the Americas, 14 percent from the Asia-Pacific region and 36 percent from Europe, the Middle East, and Africa.<\/p>\n

Zacks most recent research report states that 43 percent of Zimmer Biomet\u2019s sales came from the international market during the third quarter. \u201cThe recent strengthening of the dollar had a negative impact of 6 percent on revenues, or $113 million,\u201d the analysts wrote. \u201cZimmer Biomet expects this headwind to lower revenues 4.5 percent on a reported basis in the fourth quarter.\u201d<\/p>\n

Despite currency adversity, the majority of analyst and company forecasts are hopeful. \u201cWe are pleased with the achievements of our global teams during Zimmer Biomet’s first quarter as a combined company,” said David Dvorak, president and CEO of Zimmer Biomet in a press release. “As we exit this year and progress through 2016, we are well positioned to continue improving revenue growth and delivering on our synergy commitments.\u201d<\/p>\n

Zimmer Biomet will release fourth quarter and full-year financial results on Jan. 28, 2016.<\/p>\n

Photo at top: Former senator Dick Lugar of Indiana visited Biomet Inc. in 2012. (Dick Lugar\/FLICKR<\/a>)<\/div>\n","protected":false},"excerpt":{"rendered":"

By Sarah Very The hub of orthopedic innovation exists in Lilliputian, quaint Warsaw, Ind. \u2014 where news of corporate mergers and artificial joints fills radio broadcasts and coffee shop smalltalk. On June 24, 2015, Zimmer Inc. acquired crosstown rival Biomet Inc. for $13.35 billion \u2014 positioning Zimmer Biomet Holdings Inc. as the second largest company […]<\/p>\n","protected":false},"author":180,"featured_media":26365,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[27,585],"tags":[1057,1051,902,1055,1056,1054,1053,1058,1052,1049,1050],"class_list":["post-25889","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-winter-2016","tag-acquisition","tag-biomet-inc","tag-indiana","tag-joints","tag-medical","tag-orthopedics","tag-sarah-very","tag-synergies","tag-warsaw","tag-zimmer-biotech","tag-zimmer-inc"],"yoast_head":"\nAnalysts predict strong earnings for Zimmer Biomet post-acquisition - Medill Reports Chicago<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/news.medill.northwestern.edu\/chicago\/analysts-predict-strong-earnings-for-zimmer-biomet-post-acquisition\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Analysts predict strong earnings for Zimmer Biomet post-acquisition - Medill Reports Chicago\" \/>\n<meta property=\"og:description\" content=\"By Sarah Very The hub of orthopedic innovation exists in Lilliputian, quaint Warsaw, Ind. \u2014 where news of corporate mergers and artificial joints fills radio broadcasts and coffee shop smalltalk. 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