Zimmer Biomet Earnings: Strong First Quarter Bodes Well for 2023

Wide-moat Zimmer Biomet ZBH delivered first-quarter results that exceeded most expectations, especially on the top line, and we’ve slightly dialed up our projections for the full year following this strength. However, these adjustments weren’t enough to materially shift our fair value estimate, especially as the firm’s first-quarter costs tracked closely along with our expectations. Zimmer Biomet’s quarterly revenue growth of 13% (in constant currency) was within spitting distance of Stryker’s 14% year-over-year growth. Similar to the cardiac device makers, most of the large orthopedic implant competitors received a boost from the comparison with a soft prior-year period. But even after accounting for that, the device makers saw robust quarterly growth thanks to increased medical utilization, easing labor conditions at providers, and improving access to component parts. Though we think it’s unlikely that Zimmer Biomet can maintain this 13% growth through the full year, the strong start does suggest our original low-single-digit revenue growth assumption in 2023 was likely too low. We now estimate full-year sales growth should fall closer to 4.7%, after adjusting for foreign exchange headwinds.

While quarterly growth in orthopedics was extremely strong, we think it’s also worthwhile recognizing Zimmer Biomet’s performance relative to competitors. Over the last five years, the firm has consistently seen its large joint growth trail the leadership pace set by Stryker, but exceed that of J&J and Smith & Nephew as they brought up the rear. Early in that period, as Zimmer Biomet struggled with regulatory, inventory management, supply chain issues, and the melding of Zimmer with Biomet, the firm’s growth was more similar to J&’s. Now, operational improvements and successful commercialization of innovation are driving the firm’s growth closer to that of Stryker’s.