The medical devices seller Zimmer Biomet posted earnings results that topped Wall Street’s expectations while revealing its plan of spinning off its Spine and Dental businesses into a separate publicly-traded company.
Zimmer Biomet, founded in 1927, stands as a global leader in musculoskeletal healthcare. It manufactures products that help in the treatment of disorders or injuries to bones, joints, or supporting soft tissues. It operates in over 25 countries and sells products in over 100 countries.
The Warsaw, Indiana-based company posted fourth-quarter results Friday that went beyond analysts’ forecasts. Earnings, adjusted for one-time gains and costs, were $2.11 per share on revenue of $2.09 billion. According to a survey by Zacks Investment Research, analysts were expecting earnings of $2.06 per share on revenue of $2.07 billion. The full-year loss amounted to $138.9 million or 67 cents per share on revenue of $7.02 billion.
Spinning Off Spine & Dental Businesses
The decision to spin-off will enhance the focus of both Zimmer Biomet and the spun-off company to satisfy the needs of customers which is expected to accelerate growth and deliver greater value to shareholders. It would allow better alignment of resources and processes more closely with the strategic priorities of each business.
The spin-off will reduce complexities while improving operational efficiencies and enhance capital distribution based on the objectives of each business. For investors, this means they can now make more targeted investments as each business will have a compelling financial profile that reflects their strengths and opportunities.
Post the spin-off, Zimmer Biomet will sharpen its focus on high growth and high priority areas within the orthopedics market, including Knees, Hips, Sports Medicine, Extremities and Trauma (S.E.T.), and Craniomaxillofacial and Thoracic (CMFT). The company has tremendous growth opportunities with a total market of $43.5 billion.
In financial terms, the deal is expected to be accretive to revenue growth by around 50 basis points while increasing the adjusted EBITDA and operating margins by 125 basis points on a pro forma basis, during the company’s five-year strategic-planning period, making the company’s financial profile more compelling.
Spun Off New Company
On the other hand, the combined Spine and Dental businesses will be well-positioned in the $21 billion combined markets. The spine portfolio covers all areas of spinal surgery while the dental business, which stands as a global leader in oral reconstruction, covers premium segments of the dental market including surgical, restorative and digital, and regenerative solutions.
The new spun-off entity is expected to benefit from free cash flow diversification and financial resources for innovation and investment. It would aid in commercializing new product launches and meeting customer needs more directly.
Bryan Hanson will resume his role as President and CEO of Zimmer Biomet while the CEO of the spun-off company is not final yet.
Zimmer shares have jumped around 4% since the start of 2021 and have increased 2.5% in the last year.
The spin-off is targeted to complete in mid-2022, subject to satisfaction of certain conditions including, among others, the final approval of Zimmer Biomet’s Board of Directors.