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ZB

ZIMMER BIOMET HOLDINGS, INC. (ZBH)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $2.023B (+4.3% reported, +4.9% constant currency) and adjusted EPS was $2.31, with adjusted operating margin expanding to 30.8% YoY; pricing remained favorable and S.E.T. led growth .
  • Management issued FY 2025 guidance: constant-currency revenue +3% to +5% (reported +1% to +3.5% on ~150–200 bps FX headwind) and adjusted EPS $8.15–$8.35, with stronger 2H driven by product ramps and easier comps; margins expected to be flat (gross) and up (operating) for the year .
  • Strategic catalysts: PMA approval for Oxford Cementless Partial Knee (only FDA‑approved cementless partial knee in the U.S.), 510(k) clearance for OsseoFit Stemless Shoulder, CE Mark for Persona Revision, and definitive agreement to acquire Paragon 28 to scale foot & ankle and ASC distribution leverage .
  • Free cash flow was $403M in Q4 and $1.055B for FY 2024; net debt ended at $5.68B, with inventory days reduced ~50 days to ~375, supporting working capital and cash conversion improvements into 2025 .

What Went Well and What Went Wrong

  • What Went Well

    • “We grew sales nearly 5% constant currency… 12th consecutive quarter of mid‑single‑digit or better constant‑currency revenue growth… delivering near 5% constant‑currency revenue growth, $8 adjusted EPS and free cash flow of $1.050B” — CEO Ivan Tornos . S.E.T. grew 8.4% in Q4, led by CMFT (+13%), Sports (+22%), Upper Extremities (+8%) .
    • Adjusted operating margin expanded to 30.8% (+50 bps YoY) on revenue leverage and SG&A efficiencies; consolidated pricing stayed positive (+60 bps), fourth consecutive quarter .
    • Strong innovation pipeline: Oxford Cementless Partial Knee PMA, OsseoFit Stemless Shoulder 510(k), Persona Revision CE Mark; expanding ROSA applications and hip navigation via OrthoGrid; management expects Oxford and Persona to contribute in 2H25 .

  • What Went Wrong

    • GAAP gross margin declined YoY (63.2% vs 64.8%); adjusted gross margin 71.3% vs 72.5% in Q4 2023, with FX and capitalized cost increases headwinds, particularly 1H25 carryover .
    • Non‑operating expenses higher: adjusted net interest and other non‑operating expenses ~$62M in Q4 due to higher debt and rates; FY25 expected ≥$255M .
    • ERP implementation in 2H24 weighed on surgical/“Technology & Data, Bone Cement and Surgical” segment (‑4.9% in Q4 reported); lost business in some areas and delayed launches, though shipping normalized exiting 2024 .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Revenue ($USD Billions)$1.940 $1.942 $1.824 $2.023
Diluted EPS (GAAP, $)$2.01 $1.18 $1.23 $1.20
Adjusted Diluted EPS ($)$2.20 $2.01 $1.74 $2.31
Gross Margin (GAAP, %)64.8% 64.1% 62.4% 63.2%
Adjusted Gross Margin (%)72.5% 71.6% 71.0% 71.3%
Operating Margin (GAAP, %)18.3% 18.1% 15.3% 19.2%
Adjusted Operating Margin (%)30.3% 28.5% 26.3% 30.8%

Segment breakdown – Q4 2024

SegmentNet Sales ($MM)YoY % (Reported)YoY % (Constant Currency)
Knees (Total)$839.2 +5.1% +5.6%
- United States$490.1 +3.9% +3.9%
- International$349.1 +6.8% +8.0%
Hips (Total)$520.0 +3.0% +4.0%
- United States$271.7 +3.2% +3.2%
- International$248.3 +2.8% +4.8%
S.E.T.$489.4 +8.0% +8.4%
Technology & Data, Bone Cement and Surgical$174.6 −4.9% −4.3%
Geographic – United States$1,181.2 +4.7% +4.7%
Geographic – International$842.0 +3.7% +5.2%

KPIs

KPIQ4 2024Notes
Free Cash Flow ($MM)$402.8 Q4; FY 2024 FCF $1,055.3
Adjusted Tax Rate (%)17.5% Higher vs 15.8% Q4 2023 due to Pillar 2
Pricing (bps)+60 bps Fourth consecutive quarter positive
Cash & Equivalents ($MM)$525.5 Year-end
Net Debt ($MM)$5,679.1 Year-end
Inventory Days on Hand~375 Reduced ~50 days YoY

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Reported Revenue Growth (%)FY 2025N/A1.0% – 3.5% New
Constant Currency Revenue Growth (%)FY 2025N/A3.0% – 5.0% New
FX Impact (bps)FY 2025N/A(150) – (200) bps New
Adjusted Diluted EPS ($)FY 2025N/A$8.15 – $8.35 New
Adjusted Gross MarginFY 2025N/AIn line with 2024 New
Adjusted Operating MarginFY 2025N/AIncrease vs 2024 (5th straight year) New
Net interest & other non‑op. ($MM)FY 2025N/A≥$255 New
Adjusted tax rate (%)FY 2025N/A~18% New
Diluted shares (MM)FY 2025N/A~201 New
Free Cash Flow ($B)FY 2025N/A$1.1 – $1.2 New
Revenue cadenceFY 2025N/A2H stronger than 1H; Q1 −1 selling day (~100–150 bps headwind), muted Q2; product ramps in 2H New
Reported Revenue Growth (%)FY 20244.0% – 5.0% (Aug) 3.5% – 4.0% (Oct) Lowered/Narrowed
Constant Currency Revenue Growth (%)FY 20245.0% – 6.0% (Aug) 4.25% – 4.75% (Oct) Lowered/Narrowed
Adjusted Diluted EPS ($)FY 2024$8.00 – $8.15 (Aug) $7.95 – $8.05 (Oct) Lowered/Narrowed

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q2 2024)Previous Mentions (Q-1: Q3 2024)Current Period (Q4 2024)Trend
ERP implementation/supply chainBeat expectations; maintained guidance; ERP noted as challenge in 2H Impact reduced to 60–80 bps of annual sales; normalization by year‑end Exited 2024 at pre‑ERP shipping levels; 2H25 benefited by easier comps Improving; headwind largely behind
PricingPositive environment; governance/process enhancements +70 bps consolidated; third consecutive quarter positive +60 bps; fourth consecutive quarter positive Sustained positive vs historical erosion
AI/technology & roboticsOrthoGrid acquisition; ROSA, TMINI collaboration; ASC turnkey partnerships Broader ROSA roadmap; hip navigation (Hip AI), mixed reality; Z1/HAMMR launch ROSA updates (CT, knee kinematic alignment, posterior hip), Oxford PMA, OsseoFit 510(k), Persona Revision CE Expanding breadth and indications
Product performance (Hips/Knees/S.E.T.)Knees/S.E.T. drove growth; Hips modest Knees +5.5% CC; Hips +3.7%; S.E.T. +7.3% Knees +5.6% CC; Hips +4.0%; S.E.T. +8.4% S.E.T. outpacing; recon steady
Tariffs/macro/FXFX headwind to reported revenue; reaffirmed CC growth FX ~75 bps headwind FY24; ERP + headwinds; hurricane/IV bag disruptions noted FY25 FX headwind 150–200 bps; Q1 −1 selling day; adjusted tax higher (Pillar 2) FX pressure higher; tax rate up
Regional trendsU.S. +3.5% H1; Intl +7.0% CC H1 U.S. +2% Q3; Intl +7.1% CC; ERP impact higher in U.S. “Other” U.S. +4.7%; Intl +5.2% CC Q4 Both regions healthy; Intl slightly stronger
ASC strategyCBRE partnership; ASC turnkey solution; robotics optionality Continued ASC focus; TMINI handheld complements ROSA ASC penetration approaching ~20% of U.S. sales; foot/ankle synergies with Paragon 28 Accelerating exposure & portfolio fit
Regulatory/legalNone specific (Q2 PR)N/ALitigation & EU MDR adjustments detailed in non‑GAAP recon Ongoing normal course

Management Commentary

  • “We grew sales nearly 5% constant currency… 12th consecutive quarter of mid‑single‑digit or better constant‑currency revenue growth… delivering near 5% constant‑currency revenue growth, $8 in adjusted EPS and free cash flow of $1.050 billion.” — Ivan Tornos, CEO .
  • “Adjusted operating margin was 30.8%, 50 bps higher than the prior year due to revenue leverage and continued efficiencies across SG&A… FX headwinds accounted for about $0.05 of EPS erosion.” — Suketu Upadhyay, CFO .
  • “We plan to launch over 50 new products in the next 36 months… Oxford Cementless Partial Knee and Persona will contribute to growth in the second half of 2025.” — CEO .
  • “Once the Paragon 28 transaction is closed, the combined S.E.T. segment is expected to be larger than our Hip franchise and… grow faster than both Knee and Hip.” — CFO .

Q&A Highlights

  • Guidance philosophy: 2025 range characterized as “appropriate” with more drivers to upper range (new products, ASC investments, U.S. execution), acknowledging one fewer selling day and FX headwinds .
  • Paragon 28 integration: Maintain dedicated independent 1099 channel, minimize disruption; accretive to revenue growth, modest EPS dilution initially and accretive within 24 months; ASC cross‑sell opportunities (e.g., bunion) .
  • Cadence: 2H stronger than 1H; Q1 ~2% ex‑FX growth with −1 selling day; gross and operating margins lower in 1H on higher inventory costs and launch expenses, better in 2H on efficiency gains .
  • Margins: Gross margin flat YoY in FY25 despite inflation and FX; operating margin expansion continues with footprint optimization, mix, lower E&O .
  • Tariffs/manufacturing footprint: No manufacturing in Mexico/Canada; ~2/3 in U.S.; single‑digit in China; scenario planning embedded in guidance .

Estimates Context

  • We attempted to retrieve S&P Global consensus for Q4 2024 EPS and revenue, but the data was unavailable due to request limits. As a result, explicit beat/miss vs consensus cannot be determined in this report. Values would be retrieved from S&P Global if available.

Key Takeaways for Investors

  • Mix and pricing tailwinds are intact; S.E.T. continues to outgrow recon and should structurally lift growth and margin/FCF profile, with Paragon 28 adding scale and ASC exposure .
  • Innovation catalysts in 2025: Oxford Cementless Partial Knee PMA (only cementless PKR FDA‑approved), OsseoFit Stemless Shoulder, Persona Revision CE, plus ROSA enhancements should drive 2H acceleration and support U.S. share recapture in partial knees and hips .
  • FX and selling-day headwinds temper reported growth/ EPS in 1H25, but margin trajectory and cash conversion improve as low‑cost inventory and efficiency programs flow through; monitor 2H ramp execution .
  • Working capital progress (inventory days ~375) and strong FCF ($1.055B FY) underpin optionality for buybacks and inorganic investments post‑Paragon close .
  • Watch U.S. execution in “Technology & Data, Bone Cement and Surgical” segment recovery post‑ERP and early uptake of Oxford/Persona/ROSAs; management flagged renewed focus on U.S. go‑to‑market .
  • FY 2025 guidance implies steady CC growth (3–5%) and operating margin expansion; EPS leverage constrained near‑term by FX/non‑op costs—track FX trends and interest expense trajectory vs ≥$255M guide .
  • ASC remains a meaningful structural tailwind with ~20% U.S. sales already; Paragon 28 enhances product fit and dedicated channel—follow ASC contribution growth and cross‑selling realization .

Notes:

  • All company results and guidance are sourced from the Q4/FY 2024 press release and Form 8‑K, and Q4 2024 earnings call transcript .
  • Prior-quarter comparatives are from Q3 and Q2 2024 press releases and Q3 2024 call .