By the numbers
Q3 sales: $1.75 billion
5% year-over-year increase
Net income: $162.7 million
16% year-over-year decrease
Tornos’ 3 priorities
New Zimmer Biomet CEO Ivan Tornos laid out his top three priorities for the company in a call with investors on Tuesday. Tornos was promoted in August after former CEO Bryan Hanson left to lead 3M’s health business.
Tornos’ first priority is keeping Zimmer’s people and culture, which he said have been “foundational” for the company. The second priority is operational excellence, which involves growing revenue and simplifying the company’s operations and manufacturing footprint. And third, Tornos wants Zimmer to diversify and innovate “in a far broader way” through developing new products and acquisitions.
“We will do M&A. We’re going to be thoughtful and disciplined about the spaces that we prioritize,” Tornos told investors, adding that the company’s balance sheet is “stronger than ever.”
Some high-growth areas the company is interested in include joint reconstruction, surgical navigation technologies, sports medicine, ambulatory surgery centers (ASCs) and craniomaxillofacial and thoracic procedures.
Tornos said Zimmer hasn’t changed its strategy in terms of financials, targeting acquisitions of up to $2 billion. The company also wants acquisitions to be earnings-per-share neutral within two years.
Segment results
Zimmer’s knee business sales grew 7.5% to $706.3 million, and hip sales declined by 0.6% to $465.3 million, which the company attributed to challenges in China and Russia.
The company’s “other” segment grew by 17% to $158.8 million, driven by sales of its Rosa surgical robots. Tornos said the company is on track to install about 300 Rosa units by the end of 2023.
Zimmer’s net income of $162.7 million decreased from last year because of a favorable tax settlement in 2022, CFO Suky Upadhyay said.
J.P. Morgan analyst Robbie Marcus wrote in a research note that the company’s earnings per share of $1.65 came in ahead of Wall Street’s expected $1.60, but its gross margin of 70.9% was lower than forecasts.
Looking to 2024, Upadhyay said the company expects a higher tax rate next year, and more pressure from foreign exchange rates.
On the upside, he said Zimmer’s new product launches have been executing “extremely well,” and the company is seeing a more moderated pricing environment. He expects to see earnings grow faster than revenue next year, and to offset some of the effect of foreign exchange rates on margins with improvements in operations and manufacturing.
ASC focus
Zimmer and its orthopedics peers are focusing on ASCs as more procedures move to the outpatient setting. Currently, 10% to 15% of Zimmer’s sales are in the ASC space, Tornos said. The company believes roughly 40% to 60% of cases are going to move to ASCs in the next five years.
The CEO said hips and knees are “pretty equal” in ASC sales, and the company also sees an opportunity in shoulder procedures after the Centers for Medicare and Medicaid Services recently added total shoulder arthroplasty to its covered procedures list for ASCs.
About a third of installations for its Rosa surgical robots happen in ASCs, Tornos added.
Forecast
Zimmer lowered its revenue forecast for 2023 to reflect a bigger impact from foreign currency. It now expects a range of from 6% to 6.5% growth, down from its previous range of from 6.5% to 7%. On a constant currency basis, its revenue forecast is unchanged.
The company also maintained its forecast range for earnings per share of $7.47 to $7.57 in 2023.