Zimmer Biomet stock falls on warning

Investing.com -- Zimmer Biomet shares dropped over 8% on Thursday after the company disclosed significant challenges stemming from an enterprise resource platform (ERP) transition at a competitor conference.

The ERP issue, which was first identified in August, is expected to result in a 1% full-year sales headwind or approximately $75 million in lost revenue for 2024, Stifel analysts explained in a note following the conference.

The transition problems are not said to be affecting the company's ability to manufacture equipment, but they are slowing down shipments, primarily in the Sports, Extremities, and Trauma (SET) segments.

This shipping delay is expected to have the greatest impact in the third quarter, with more than half of the sales hit anticipated then.

Stifel estimated this ERP-related headwind could represent a 210bps headwind on 3Q24 sales, adding pressure to already challenging market conditions.

Despite these hurdles, Zimmer Biomet’s CEO Ivan Tornos expressed optimism, particularly in the Knees and Hips segments, noting they were performing better than in the first half of 2024.

However, the company reportedly acknowledged the possibility of losing some business to competitors, as physicians may substitute products from rivals like Johnson & Johnson (NYSE:JNJ ), Stryker (NYSE:SYK ), and Smith & Nephew (LON:SN ) to avoid delays.

Reacting to the news, Evercore ISI analysts estimated the ERP issue could reduce Zimmer Biomet's EPS by around 15 cents for 2024, with a 10-cent impact on third-quarter earnings.

They believe the company could recapture some of the lost sales in 2025 as the transition is resolved.

Zimmer Biomet management is working with third-party consultants to address the issue, but until then, the analysts believe thestock and earnings outlook remain under pressure from the ongoing ERP transition challenges.

Source: Investing.com