Replies to post #21053 on The Rising Influence of Rising Affluence

[DewDiligence]

ZBH/SYK/SNN—…reacting to Covid-19 uncertainty after initial positive Q4 report reactions. What are your thoughts wrt to procedure volume for artificial joint replacements procedures for the remainder of the year in the USA and EU?

The kinds of elective procedures that drive product sales for these companies will grind to a halt if COVID-19 goes pandemic. Moreover, these companies derive a material proportion of sales and profits from emerging markets and Asia in particular.

One of the portfolios I manage has a position in ZBH, dating back to Zimmer’s 2001 spinoff from BMY, where the cost basis is so low that I don’t want to take the tax hit from selling. If not for that, I would probably lighten up.

[DewDiligence]

ZBH/SYK/SNN—More on same topic—(echoes comments in #msg-154039882):

https://www.marketwatch.com/story/coronavirus-has-slowed-down-elective-surgeries-in-china-hurting-device-makers-2020-02-20

Bad: These companies sell products for elective surgeries such as knee and hip replacements.

Good: A temporary slowdown (or total halt) in elective surgical procedures can be made up later, to a large degree, inasmuch as the medical conditions that benefit from these kinds of procedures are chronic.

[DewDiligence]

ZBH/SYK/SNN/etc—Vantage weighs in on orthopedics companies:

https://www.evaluate.com/vantage/articles/analysis/spotlight/joint-makers-report-pandemic-pain

Vantage questions whether SYK’s buyout of WMGI, announced in Nov 2019 (#msg-152075660), will close as planned in 2H20.

[DewDiligence]

ZBH quantifies the damage—in part:

https://www.prnewswire.com/news-releases/zimmer-biomet-provides-update-on-covid-19-impact-301036176.html

In March 2020, COVID-19 reached a pandemic level and Zimmer Biomet was impacted by a significant and sudden global decline in elective procedure volumes. As a result, based on preliminary, unaudited financial results, Zimmer Biomet estimates revenue growth for the first quarter 2020 will be approximately -9.5 to -10.5 percent on a reported basis and -8.5 to -9.5 percent on a constant currency basis when compared to the first quarter of 2019.

The Company is currently conducting its closing process for the first quarter of 2020 and is unable to provide a more precise estimate of its full financial results [i.e. no EPS guidance]. Final results for the first quarter are scheduled to be announced on May 11, 2020.

In other words, the hit to 1Q20 EPS was so bad ZBH doesn’t even want to talk about it until the 1Q20 earnings release on 5/11/20.

2Q20 will clearly be even worse than 1Q20 insofar as only 1/3 of 1Q20 was severely affected by the pandemic.

Unsurprisingly, ZBH is withdrawing prior guidance for full-year 2020 results.