ZBH Q1 Earnings Call: Revenue Tops Expectations, Guidance Lowered Amid Tariff and Integration Headwinds

Medical device company Zimmer Biomet (NYSE: ZBH) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 1.1% year on year to $1.91 billion. Its non-GAAP profit of $1.81 per share was 2.3% above analysts’ consensus estimates.

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StockStory’s Take

Zimmer Biomet’s Q1 results reflected steady product momentum, especially in U.S. Hips and the S.E.T. (Sports Medicine, Extremities, and Trauma) segment, offsetting the impact of one less selling day in the quarter. CEO Ivan Tornos pointed to strong adoption of the company’s “magnificent seven” product lineup and highlighted that new product launches, such as the Z1 Hip Stem and Oxford Partial Cementless Knee, are attracting customer conversions from competitors and driving segment penetration.

Looking ahead, management lowered its adjusted EPS guidance due to anticipated tariff-related costs and modest earnings dilution from the Paragon 28 acquisition, despite maintaining its organic constant currency revenue growth outlook. CFO Suketu Upadhyay explained that mitigation efforts around tariffs, including operational changes and sourcing, are expected to offset much of the impact in 2025. However, management acknowledged ongoing uncertainty from tariffs and integration costs as factors likely to pressure margins and free cash flow for the remainder of the year.

Key Insights from Management’s Remarks

Management described several operational and strategic shifts as key to Q1 performance and the company’s outlook. Product launches, a focus on commercial execution, and supply chain initiatives were at the forefront, with new leadership and a major acquisition set to influence the business in coming quarters.

• U.S. Hips momentum: The company’s “magnificent seven” product cycle, including the Z1 Hip Stem and OrthoGrid AI-driven surgical guidance, led to nearly 4% growth in U.S. Hips. Management noted that about half of Z1 users are new conversions from competitive accounts, underscoring the impact of targeted innovation on market share.
• Cementless Knee adoption ramping: Penetration of the Persona OsseoTi Cementless Knee surpassed 25% in the U.S., and the Oxford Partial Cementless Knee received PMA approval, with hundreds of surgeons already trained. Management expects broader adoption and accelerated growth in Knees as full-scale launches continue through 2025.
• S.E.T. segment outperformance: S.E.T. delivered mid-single digit growth globally for the sixth straight quarter, now outpacing the Hips business in size following the Paragon 28 acquisition. Management attributed this to new launches and expanding commercial resources in high-growth markets.
• Operational changes and leadership hires: The company made key leadership additions in strategy, innovation, and commercial operations, especially in Asia-Pacific and U.S. management, to bolster execution and pricing capabilities. Broader sales force optimization and incentive plan updates are underway to address underperformance in U.S. Knees.
• Paragon 28 integration progress: The Paragon 28 acquisition closed in April, with the full commercial and leadership teams retained. Management emphasized minimal disruption, ongoing product innovation, and a focus on maintaining Paragon’s entrepreneurial culture as part of Zimmer Biomet’s diversification strategy.

Drivers of Future Performance

Zimmer Biomet’s outlook for the rest of the year is shaped by new product launches, mitigation of tariff-driven cost pressures, and integration of recent acquisitions, all against a backdrop of ongoing commercial execution improvements.

• New product launches: Management expects the ramp-up of new implants in Knees and Hips, along with expansion in S.E.T., to drive acceleration in organic revenue growth, especially in the second half of the year as training and supply chain readiness increase.
• Tariff mitigation and operational efficiency: The company is focused on offsetting tariff headwinds through sourcing optimization, discretionary spending reductions, and portfolio adjustments, but acknowledged that persistent trade policy uncertainty and inventory capitalization may pressure margins beyond 2025.
• Integration of Paragon 28: While the acquisition is expected to contribute meaningfully to reported revenue growth, initial earnings dilution and integration costs will weigh on profitability and free cash flow, with management targeting EPS neutrality from the deal by the end of year two.

Top Analyst Questions

• Robbie Marcus (JPMorgan): Asked about the scale and mitigation of tariff impacts; management detailed sourcing and spending adjustments, stating that most of the 2025 headwind would be offset, but 2026 remains uncertain due to potential annualization of tariffs and inventory effects.
• David Roman (Goldman Sachs): Sought clarity on achieving mid-single digit growth given softer Q1; CEO Ivan Tornos emphasized easier second-half comparisons and the impact from new product launches, with confidence in hitting the full-year growth target.
• Chris Pasquale (Nephron): Inquired about the timing and magnitude of new Knee product adoption; management replied that U.S. Knee growth should begin to accelerate in Q2, with momentum building through the remainder of the year as more surgeons are trained.
• Matthew O’Brien (Piper Sandler): Questioned the sustainability of recent pricing gains; CFO Suketu Upadhyay indicated pricing should remain stable for the year, with most future increases likely in capital rather than implant products.
• Larry Biegelsen (Wells Fargo): Asked about competitive positioning of the ROSA robotic platform versus peers; management highlighted upcoming software updates and additional modalities as steps to strengthen ROSA’s value proposition, but acknowledged commercial execution needs improvement in U.S. Knees.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace of adoption for new Knees and Hips products, particularly the Oxford Partial Cementless Knee and Persona OsseoTi, (2) the ongoing impact and mitigation of tariffs on margins and free cash flow, and (3) progress in integrating Paragon 28 while preserving its growth trajectory and culture. Additional attention will be paid to whether commercial execution and leadership changes translate into improved U.S. market share and margin expansion.

Zimmer Biomet currently trades at a forward P/E ratio of 11.7×. Should you load up, cash out, or stay put? See for yourself in our free research report.

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