Zimmer Biomet Earnings Call: Tech Momentum, Higher Guidance

Zimmer Biomet Holdings ((ZBH)) has held its Q1 earnings call. Read on for the main highlights of the call.

Zimmer Biomet’s latest earnings call struck a cautiously upbeat tone, as management highlighted stronger‑than‑expected earnings, robust cash generation and rising guidance despite clear commercial and macro headwinds. Investors heard a story of solid execution on technology and M&A priorities, offset by near‑term disruption in U.S. knees, salesforce changes and pockets of softness overseas.

Revenue Growth Shows Steady but Modest Momentum

Zimmer Biomet reported net sales of $2.087 billion, up 9.3% reported but just 2.9% on an organic constant currency basis excluding Paragon 28. U.S. sales rose 3.2% and international markets grew 2.5% in Q1 2026, signaling steady but not explosive demand as the company navigates product transitions and go‑to‑market changes.

Earnings Beat with Strong Adjusted and GAAP EPS

Adjusted EPS climbed to $2.09, roughly 15% higher than the prior year’s $1.81 on an adjusted basis, comfortably topping expectations. GAAP diluted EPS also improved to $1.22 versus $0.91 in the year‑ago quarter, underscoring improved profitability even after accounting for restructuring and acquisition‑related items.

Margins Hold Up as Full‑Year EPS Guidance Rises

The company posted an adjusted gross margin of 73% and an adjusted operating margin of 27.3%, both healthy levels in a competitive medtech landscape. Management boosted full‑year adjusted EPS guidance to a range of $8.40 to $8.55 from $8.30 to $8.45, signaling confidence that margin discipline can offset pricing pressure and higher interest expense.

Free Cash Flow Strengthens Balance Sheet Flexibility

Operating cash flow reached $359 million in Q1, translating into $246 million of free cash flow and leaving Zimmer Biomet with about $424 million in cash and equivalents. The company raised its 2026 free cash flow growth outlook to 9% to 11% from 8% to 10%, reinforcing its ability to fund investment, service debt and return capital to shareholders.

Technology and Robotics Power a High‑Growth Engine

Technology, data, bone cement and surgical solutions grew nearly 12% in the quarter, making them key growth drivers within the portfolio. Robotics and enabling technologies showed particular strength, with TMINI referenced as growing around 30%, continued ROSA momentum and OrthoGrid delivering its strongest quarter to date as surgeons adopt more digitally enabled tools.

Monogram Study Completion Advances Robotic Roadmap

Zimmer Biomet completed enrollment in its 102‑patient Monogram clinical study, marking an important milestone in its next‑generation robotic strategy. Management is targeting a semiautonomous Monogram launch in early 2027 and a fully autonomous version in late 2027 or early 2028, alongside plans to hire more than 200 robotic clinical sales reps by 2027 to support adoption.

Paragon 28 Integration Accelerates Top‑Line Contribution

The Paragon 28 acquisition added roughly 100 basis points to reported sales growth in 2026, underscoring its strategic value in foot and ankle. Growth in the business accelerated by about 200 basis points sequentially from Q4 2025 and is trending back toward double‑digit levels, suggesting that integration is progressing and synergies are beginning to show.

Capital Returns Supported by Share Repurchases

Zimmer Biomet repurchased $250 million of shares in the first quarter, ending with 195.8 million fully diluted shares outstanding. Management continues to assume up to $750 million of share repurchases for the full year, reflecting confidence in cash generation and a commitment to shareholder returns even amid elevated investment and debt service.

Operational Efficiency and Strategic Talent Additions

Management highlighted ongoing SKU rationalization, reduced days of inventory and expanded manufacturing in lower‑cost geographies as levers to support margins. The company also appointed Dr. Jonathan as a senior leader overseeing science, technology and medical affairs, with a mandate to shape its AI, robotics and software strategy and further differentiate the portfolio.

U.S. Knees Face Legacy Product and Market Headwinds

U.S. knee sales grew only 2.2% in Q1 as the firm phases out legacy implants such as NextGen and Vanguard, creating friction in near‑term growth. The business also lost two large accounts and saw added pressure from a West Coast Kaiser strike, highlighting that product transitions and external events are weighing on an otherwise solid reconstructive franchise.

Salesforce Transformation Brings Short‑Term Disruption

The shift to a more specialized, dedicated U.S. sales channel delivered productivity gains in territories that have already transitioned but caused modest disruption overall in the quarter. Management expects the transformation, which runs through the end of 2027, to require higher commercial investment and to create intermittent short‑term pressure as teams and territories are reset.

International Markets Trail U.S. Amid Channel Changes

International revenue lagged, growing 2.5% compared with the U.S., as distributor and go‑to‑market changes weighed on emerging markets such as China, the Middle East and parts of Europe. Some of the softness also reflected one‑time order timing issues, leaving room for improvement as new distribution structures stabilize and underlying procedure volumes recover.

Tariff Benefit Adds One‑Time Boost to Results

First‑quarter results were helped by a $0.20 benefit tied to invalidated tariffs and related refunds, which management described as partly pulling forward upside that had been expected for the second half. With roughly half of that benefit previously assumed later in the year, investors should view this tailwind as less durable and adjust expectations for run‑rate earnings power.

Pricing Pressure Remains a Structural Headwind

Consolidated pricing in the quarter was negative by about 40 basis points, reflecting ongoing competition and payer pressure across orthopedics. The company continues to assume up to 100 basis points of price erosion for full‑year 2026, underscoring the need for mix upgrades, cost controls and innovation to sustain margins in a deflationary pricing environment.

Higher Interest Costs Weigh on Nonoperating Line

Adjusted net interest and nonoperating expenses were about $71 million higher than a year ago, driven largely by debt taken on to fund the Paragon 28 acquisition. While the deal is helping top‑line growth, the additional leverage increases sensitivity to interest rates and raises the bar for returns on invested capital from future M&A.

Pockets of Weakness in Selected Product Segments

The SCP segment grew only 1.6%, with management citing continued challenges in restorative therapies and trauma businesses as key soft spots. These weaker areas highlight that not all parts of the portfolio are firing, and they could dilute overall growth until new products or restructuring efforts start to improve performance.

CFO Transition Adds Governance Overhang

CFO Suketu Upadhyay announced his departure, with Paul Stellato stepping in as interim CFO during a critical phase of commercial transformation. While there is no sign of strategic change, investors typically view senior finance transitions as a source of near‑term uncertainty, especially as Zimmer Biomet manages leverage, capital allocation and large technology bets.

Guidance Signals Confidence Despite Ongoing Headwinds

Looking ahead, Zimmer Biomet maintained its 2026 organic constant currency revenue growth outlook of 1% to 3%, implying reported growth of 2.5% to 4.5% with Paragon 28 adding about 100 basis points and a modest foreign exchange tailwind. The company lifted adjusted EPS guidance to $8.40 to $8.55 and free cash flow growth to 9% to 11%, while forecasting a slight year‑over‑year decline in operating and gross margins as it digests investments and pricing pressure.

Zimmer Biomet’s earnings call painted a picture of a medtech leader leaning into robotics, data and targeted M&A to drive long‑term growth, even as near‑term execution is complicated by channel changes and product sunsets. For investors, the raised EPS and cash flow guidance, solid tech momentum and disciplined capital returns are clear positives, tempered by sales disruption, higher interest costs and management transition risk.