Zimmer Is Kitchen-Sinking Its Guidance. Will It Work?

Amanda Pedersen 1

July 27, 2017

2 Min Read
Zimmer Is Kitchen-Sinking Its Guidance. Will It Work?

Zimmer Biomet has thrown in all the bad stuff at once, except for the kitchen sink. Will this commonly-used business strategy work to focus attention on the company's turnaround prospects?

Amanda Pedersen

Zimmer Biomet seems to be employing a common business tactic known as "kitchen sinking" its guidance. In other words, by throwing all the bad news at investors at once, perhaps they'll see the company's future prospects in a brighter light.

"Our sales growth fell short of our expectations, due in part to production delays of certain key brands and slower-than-expected sales recapture from previously affected customers in the United States," said Daniel Florin, the company's interim CEO, senior vice president, and CFO. "These factors have informed our updated outlook for the full year."

Zimmer lowered its 2017 EPS guidance to between $8.20 and $8.30 from its previous guidance of $8.50 to $8.60.

"Looking forward, we remain focused on fully restoring product supply to enhance our commercial execution, while continuing to closely engage with our customers and take advantage of the opportunities in front of us," Florin said.

The lowered guidance should not have come as a surprise to anyone, considering the recent resignation of David Dvorak as CEO, a move that was generally warmly received among investors. The Warsaw, IN-based company has struggled since it completed its $14 billion merger two years ago. Last December FDA hit the company with an unusually long Form 483 based on quality control problems at its legacy Biomet facility. In late January Zimmer Biomet decided to throw some money at its problems, with a commitment to invest $170 million to "harmonize and optimize" its supply chain and manufacturing and quality systems.

Mike Matson of Needham & Co. issued a relatively optimistic report after Zimmer Biomet's second quarter earnings call Thursday, calling the company an "early-stage turnaround story." But the CEO's departure has increased the potential for more significant strategic changes, he noted.

Matson said the company still has the potential to eventually reach 4% revenue growth or more, narrowing the 38% price to earnings discount to its peers.

Amanda Pedersen is Qmed's news editor. Contact her at [email protected].

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