Zimmer Biomet(US:ZBH)2024-08-07 20:05Financial Performance - Net sales increased by 3.9% to $1,942.0 million in the three months ended June 30, 2024, and by 3.5% to $3,831.2 million in the six months ended June 30, 2024, compared to the same prior year periods [93]. - Net earnings for the three months ended June 30, 2024, were $242.8 million, up from $209.6 million in the same period last year, while earnings for the six months decreased to $415.2 million from $442.1 million due to restructuring charges [93]. - The company expects mid-single-digit revenue growth in 2024, with a projected negative impact of approximately 1.0% from foreign currency exchange rates [94]. - Sales in the United States grew by 3.5% in the three months and 3.6% in the six months ended June 30, 2024, driven by market growth and sales of the ROSA® Robot [102]. - International net sales increased by 4.4% and 3.5% in the three and six months ended June 30, 2024, respectively, despite a negative impact of 4.1% and 3.5% from foreign currency exchange rates [102]. - Demand trends positively affected sales by 4.8% and 4.5% in the three and six months ended June 30, 2024, respectively, due to market growth and new product introductions [99]. - Global selling prices contributed positively by 0.8% and 0.5% to year-over-year sales in the three and six months ended June 30, 2024, respectively [100]. Expenses and Costs - Cost of products sold as a percentage of net sales increased to 28.5% in the three months ended June 30, 2024, from 28.1% in the same period last year, primarily due to higher manufacturing costs [104]. - Research and development expenses decreased to 5.6% of net sales in the three months ended June 30, 2024, down from 6.3% in the same period last year, due to lower spending on EU MDR compliance [105]. - Selling, general and administrative expenses increased in amount but decreased as a percentage of net sales to 38.0% in the three months ended June 30, 2024, from 38.8% in the same period last year [106]. Restructuring and Charges - In the three and six-month periods ended June 30, 2024, the company recognized restructuring expenses of $41.5 million and $165.9 million, respectively, compared to $24.4 million and $66.3 million in the same periods of 2023 [107]. - The 2023 Restructuring Plan is expected to incur pre-tax charges of $120 million to $135 million by the end of 2025, with approximately $107 million incurred through June 30, 2024 [127]. - The company anticipates reducing gross annual pre-tax operating expenses by $175 million to $200 million relative to 2023 baseline expenses by the end of 2025 as benefits from the 2023 Restructuring Plan are realized [127]. - The 2021 Restructuring Plan is projected to result in total pre-tax restructuring charges of approximately $180 million by the end of 2024, with about $170 million incurred through June 30, 2024 [127]. - The 2019 Restructuring Plan is expected to incur total pre-tax restructuring charges of approximately $370 million by the end of 2025, with around $341 million incurred through June 30, 2024 [127]. - The company expects to achieve approximately $190 million in gross annual pre-tax operating expense reductions relative to the 2021 baseline expenses by the end of 2024 [127]. - The full benefits of the 2019 Restructuring Plan will not be realized until the closure of a manufacturing facility, expected to occur in 2025 [127]. Tax and Cash Flow - The effective tax rate for the three and six-month periods ended June 30, 2024, was 19.6%, a decrease from 24.2% and 21.5% in the same periods of 2023, primarily due to a favorable mix of earnings between U.S. and foreign locations [111]. - Cash flows provided by operating activities were $597.4 million in the six-month period ended June 30, 2024, down from $655.6 million in the same prior year period, attributed to higher bonus, income tax, and restructuring-related payments [119]. - As of June 30, 2024, the company had $420.1 million in cash and cash equivalents, with an additional $1.0 billion available to borrow under its 2024 364-Day Credit Agreement [118]. Share Repurchase and Profitability - The company repurchased approximately 0.9 million shares for $95.4 million in the three-month period ended June 30, 2024, with $1,904.6 million remaining authorized under the new $2.0 billion share repurchase program [126]. - In the Americas, operating profit increased in the three and six-month periods ended June 30, 2024, driven by higher net sales from market growth and new product introductions [115]. - In EMEA, operating profit and operating profit as a percentage of net sales increased in the three and six-month periods ended June 30, 2024, due to higher net sales and lower expenses from the 2023 Restructuring Plan [116]. - In Asia Pacific, operating profit increased despite a decline in net sales due to foreign currency exchange rate changes, with higher hedge gains partially offsetting the negative impact [117]. Litigation and Future Obligations - Estimated total liabilities for litigation matters stood at $208.2 million as of June 30, 2024, with potential future payments ranging from $0 to approximately $395 million [129]. - The company is involved in various litigation matters, which may result in charges exceeding current estimates upon resolution [129]. - Future payments related to development and distribution contracts may be significant but are uncertain and have not been recognized on the balance sheets [129]. - The company is actively disputing proposed tax adjustments from the IRS for multiple years, which may significantly impact future operating cash flows [128].