Zimmer Biomet(US:ZBH)2023-02-23 16:00Financial Performance - In 2022, the company's net sales increased by 1.6% compared to 2021, with net sales of $6,939.9 million, impacted by a negative 5.0% effect from foreign currency exchange rates [176][181]. - Net earnings for 2022 were $231.4 million, a decrease from $401.6 million in 2021, primarily due to a goodwill impairment charge of $289.8 million [177]. - In 2022, net sales in the United States were $4,012.4 million, reflecting a 4.1% increase, while international sales were $2,927.5 million, a decline of 1.5% [181][188]. - The company's Knees and Hips product categories saw net sales increases of 4.9% and 2.1%, respectively, in 2022, despite negative impacts from foreign currency exchange rates [189]. - Global selling prices negatively affected year-over-year sales by 1.0% in 2022, with pricing pressure from governmental healthcare cost containment efforts [186]. - Changes in foreign currency exchange rates had a negative effect of 5.0% on year-over-year sales in 2022 [187]. - The company experienced a positive effect of 7.6% from changes in volume and mix of product sales in 2022, driven by the recovery of elective surgical procedures [184]. - In 2022, the company's operating profit decreased to 10.0% of net sales from 12.6% in 2021, reflecting a decline of 2.6 percentage points [191]. - Gross margin for 2022 was 63.3%, slightly down from 63.5% in 2021, primarily due to inflationary cost pressures and lower average selling prices [192]. Future Outlook - The company expects revenue growth in 2023 driven by market growth, recovery in procedure volumes from COVID-19, and new product introductions, despite anticipated deferrals of elective surgical procedures [179]. - Supply chain and inflation pressures are expected to continue into 2023, with some easing anticipated in the second half of the year [179]. Expenses and Charges - Research and development (R&D) expenses decreased to 5.9% of net sales in 2022 from 6.4% in 2021, attributed to the absence of significant third-party IPR&D project agreements [195]. - Selling, general and administrative (SG&A) expenses fell to 39.8% of net sales in 2022 from 41.6% in 2021, mainly due to a decline in litigation-related expenses by $135.1 million [196]. - The company recognized a goodwill impairment charge of $289.8 million in 2022, impacting the effective tax rate which rose to 27.9% from 10.7% in 2021 [198][204]. Cash Flow and Investments - Cash flows from operating activities decreased to $1,356.2 million in 2022 from $1,404.3 million in 2021, primarily due to higher tax payments [214]. - Cash flows used in investing activities increased to $522.0 million in 2022 from $443.3 million in 2021, reflecting ongoing investments in product portfolio and acquisitions [215]. - Cash flows used in financing activities decreased significantly to $775.7 million in 2022 from $1,306.0 million in 2021, influenced by the ZimVie spinoff and debt repayments [216]. - As of December 31, 2022, the company had $375.7 million in cash and cash equivalents, with $1.0 billion available under a 364-day revolving credit agreement [211]. Debt and Taxation - As of December 31, 2022, the company had outstanding debt of $5,696.5 million, with $544.3 million classified as current debt [220]. - The company expects future effective tax rates to be lower than the U.S. corporate income tax rate of 21.0% due to a favorable mix of earnings between U.S. and foreign locations [205]. - The company has a remaining liability of $187.8 million from a one-time tax on the mandatory deemed repatriation of foreign earnings [227]. Shareholder Returns - The company declared cash dividends of $0.24 per share in February, May, August, and December 2022, and plans to continue quarterly dividends subject to Board approval [223]. - A share repurchase program of $1.0 billion was authorized in February 2016, with $150.0 million repurchased in Q4 2022, leaving $850.0 million remaining under the program [224]. Restructuring and Impairment - The 2021 Restructuring Plan is expected to incur pre-tax restructuring charges of approximately $220 million, with an anticipated reduction in annual pre-tax operating expenses of about $190 million by the end of 2024 [225]. - The company recorded a goodwill impairment charge of $289.8 million for its EMEA reporting unit due to its carrying value exceeding estimated fair value [239]. Market Risks and Credit Management - The company is exposed to market risks including foreign currency exchange rates, interest rates, and commodity prices, and manages these risks through derivative financial instruments [244]. - The company maintains cash and cash equivalents primarily in highly-rated financial instruments, with a focus on capital preservation [253]. - The company has a concentration of trade receivables primarily in the public and private hospital and healthcare industry in the U.S. and internationally [256]. - Credit risk exposure is mitigated through credit approvals, limits, and monitoring procedures, with adequate reserves for losses [257]. - The company's accounts receivable collection in certain countries is influenced by the financial stability of the healthcare sectors and national economic conditions [256]. - In Europe, the company is indirectly exposed to government budget constraints and price reduction initiatives due to selling products to public hospitals [256]. - Deterioration in government funding for public hospital programs may lead to significant bad debt expenses in the future [256].