Zimmer Biomet(ZBH) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q3 2024, net sales were $1.824 billion, an increase of 4% on a reported basis and 4.1% excluding foreign currency impact [25] - Adjusted diluted earnings per share (EPS) was$ 1.74, compared to $1.65 in the prior year, indicating earnings grew faster than revenue [30] - Free cash flow for the quarter was$ 310 million, bringing year-to-date free cash flow to $652 million [32] Business Line Data and Key Metrics Changes - The combined knee and hip businesses, referred to as the reconstructed platform, grew in the mid-single-digit range globally, while the head segment delivered upper single-digit growth [9] - The S.E.T. segment grew 7.3%, led by CMFT, sports, and upper extremities, marking the fourth consecutive quarter of at least mid-single-digit growth [29] - The "other" category declined by 9.5%, primarily due to difficult comparisons from the prior year and ERP-related challenges [29] Market Data and Key Metrics Changes - The U.S. business grew by 2%, while international sales grew by 7.1%, with strength across knee and S.E.T. segments [26] - Global knees grew by 5.5%, with U.S. growth at 2.9% and international growth at 9.2% [26] - Global hips grew by 3.7%, with U.S. growth at 4.9% and international growth at 2.4% [27] Company Strategy and Development Direction - The company is focused on three strategic priorities: people and culture, operational excellence, and innovation and diversification [16] - The company plans to maintain mid-single-digit revenue growth and adjusted EPS growth of at least 1.5 times revenue through 2027 [19] - The innovation pipeline includes over 50 meaningful product launches, with a strong emphasis on the hips platform and robotics [11][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resolution of ERP challenges and anticipates returning to normal shipping levels by the end of 2024 [8] - The company expects continued market growth driven by an aging population and technological advancements [10] - Management remains optimistic about 2025, citing new product introductions and the resolution of ERP issues as key factors [42] Other Important Information - The company repurchased approximately$ 600 million in shares during Q3, with over $850 million repurchased through the end of October [33] - The company updated its 2024 guidance, expecting constant currency revenue growth of 4.25% to 4.75% [34] Q&A Session Summary Question: Why is the guidance cut more than the ERP issue for 2024? - Management indicated a conservative approach due to various factors, including pricing dynamics and recent disruptions [39] Question: What are the updated thoughts on M&A? - Management stated that while they do not need to pursue M&A to maintain growth, they are open to opportunities that make strategic and financial sense [45][46] Question: Can you provide insights into the reconstructive businesses, particularly knees? - Management confirmed recovery from previous supply chain issues and expressed optimism for knee performance moving forward [50] Question: What are the expectations for pricing in the U.S.? - Management noted positive pricing trends and structural improvements leading to better performance [86] Question: What impact is volume-based purchasing in China having? - Management reported that China represents 2% to 3% of global sales and has not significantly impacted revenue expectations [91]