Zimmer Biomet CEO Hints At 'Powerful Pipeline' Of Products
By Jof Enriquez,
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Zimmer Biomet expects accelerated savings this year from the merger that combined the two orthopedic device companies. Operating synergies and cross-selling opportunities brought about by the merger are expected to fuel revenues and market growth rates through 2016, according to the device maker.
The company upgraded its net synergy target for the first 12 months post-merger to $155 million, compared to the original estimate of $135 million. Roughly $15 million of the $20 million in accelerated year-one savings were realized in the third quarter – the first reporting quarter since the merger – with the remainder expected in the fourth quarter, according to a transcript of the earnings call from The Street. Projected three-year synergy savings remain at $350 million.
Since the merger closed in June, Zimmer Biomet has been busy consolidating sales leaders and teams from both companies. It continues to cross-train sales representatives to better understand the combined product portfolio. Integration programs will continue until the end of 2015. According to the company, it is already reaping results from integrating its sales channels, as evidenced by sequential sales improvement in the Asia-Pacific and Europe, Middle East, and Africa regions. Integration results are also reflected in adjusted earnings for full year 2015.
"The full-year earnings per share is expected to increase due to outperformance in the third quarter in capturing synergies across the merger; net synergies are forecasted at $155 million within the first 12 months after closing the deal," according to Becker's Spine Review. For the full year, Zimmer Biomet expects revenue to rise between one and 1.5 percent. For the third quarter, net earnings surged 45.5 percent, year-over-year, to $22.2 million, and net sales jumped 59.3 percent to $1.76 billion.
By business segment, Knees increased 1.7 percent year-over-year to $632 million, while Hips decreased 0.3 percent to $434 million, according to Zacks. Revenues from S.E.T (Surgical, Sports Medicine, Foot and Ankle, Extremities and Trauma) climbed 1 percent year-over-year to $371 million.
By geography, Asia-Pacific grew 4.7 percent in the third quarter, while Europe, Middle East, and Africa (EMEA) rose 1.7 percent. Revenues in the Americas dipped 0.7 percent, due to flat sales in the United States, and persistent macroeconomic headwinds in Latin America.
"We are pleased with the achievements of our global teams during Zimmer Biomet's first quarter as a combined company," said David Dvorak, president and CEO of Zimmer Biomet, in a press release. "In an operating period marked by significant progress in the execution of our sales channel integration, we generated sequential top-line improvement and strong earnings growth. As we exit this year and progress through 2016, we are well positioned to continue improving revenue growth and delivering on our synergy commitments."
Zimmer Biomet also announced the reinstatement of its share repurchase program, which was suspended in April 2014, prior to the merger deal. Currently, $599.5 million of share repurchase authorization remains available under the program.
"As a global leader in musculoskeletal innovation, Zimmer Biomet is uniquely-positioned to anticipate and serve the needs of an evolving health care environment," Dvorak said during the call. "We're excited about the progress of our teams and the course of our global integration, and we will remain focused on capturing the synergies of this merger at every level. Together, we're accelerating the Company's growth strategies, while generating attractive stockholder returns."
Dvorak added that Zimmer Biomet's newly-integrated sales teams would take advantage of cross-selling opportunities to increase revenues starting in the fourth quarter. As 2016 progresses, these cross-selling opportunities, as well as expanded market growth rates, are expected to be realized.
According to Dvorak, both Zimmer's and Biomet's legacy portfolio are moving revenues in the short-term post-merger. For the longer-term, though, the company, is preparing a "powerful pipeline" of innovative products to drive top-line growth. Dvorak declined to talk about specifics due to competitive reasons, but said the company would disclose more details as products near full commercialization.
"I think you're going to see an incredible cadence of new offerings, by virtue of the combination. What it allows us to do in the intermediate to longer term is to repurpose dollars into more differentiated innovation, and get after it in a more aggressive way addressing unmet clinical needs because of the scale that we have as a business, not just in large joints, but in the other product categories that are oftentimes faster-growing markets," said Dvorak on the earnings call.