Zimmer Biomet (ZBH) Q3 2026 earnings review
Zimmer Biomet raises its 2026 outlook, but knee sales fall
Zimmer Biomet's hip, extremities and surgical-technology lines carried the orthopedic device maker while its largest business, knee implants, shrank. Underlying sales grew 4% and free cash flow jumped 34%, but higher sales overheads kept profit per share excluding one-offs flat at $1.90. Chief executive Ivan Tornos raised the full-year outlook again, though by our math the plan still leaves fourth-quarter underlying sales growth at about 3%.
| Sales from businesses owned a year ago, ex-currency | +3.7% +4.0% last quarter |
|---|---|
| Knee implant sales, ex-currency | -2.6% +0.1% last quarter |
| Profit per share, excluding one-offs | $1.90 0% from a year ago |
| Full-year underlying sales outlook | Raised 0.5 pts middle of the range: 3.25% growth |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because gains in newer product lines and a higher full-year plan were offset by a contraction in knee implants and shrinking operating margins. Beating the second-half sales pace that the prior outlook pointed to shows that the plan was cautious, while a 3% drop in knee sales and a 1.4-point margin drop show the U.S. sales overhaul is still costly.
The question now is whether strong surgical-robot and hip sales will pull knee implants back into growth or merely cover for permanent share losses in knees. If robot installations pull implants through, U.S. knee sales will recover as converted sales territories settle; if rivals are winning the procedures, knee sales will keep lagging and sales overheads will stay high. Fourth-quarter knee sales and the 2027 margin plan will tell.
🐂 Bull Case
Hips, Extremities and Tech Carry Sales
Zimmer Biomet makes orthopedic implants and surgical tools, and it wants faster-growing lines to reduce its reliance on knee replacements. Chief executive Ivan Tornos said that hips, surgical and robotics tools, and S.E.T. — sports medicine, biologics, foot and ankle, extremities and trauma — represent two-thirds of sales and are "validating the progress of our diversification strategy, the strength of our innovation engine and the significant strides we are making in commercial execution".
- Technology & Data, Bone Cement and Surgical: $180.6 million, up 13.0% excluding currency moves
- S.E.T. (extremities, sports medicine and trauma): $578.3 million, up 7.1% excluding currency moves, with Paragon 28 now in the year-ago base
- Hips: $536.5 million, up 7.0% excluding currency moves, led by 8.2% growth outside the United States
In the quarter the medical device maker also extended its distribution deal with THINK Surgical to keep what it calls the "most comprehensive robotics portfolio" and launched two foot-and-ankle products, Megalodon and SmartShot. This matters because S.E.T. grew 7.1% on its own after passing the April anniversary of the Paragon 28 foot-and-ankle acquisition, while international hip sales accelerated on the rollout of iodine-coated implants in Japan.
What to watch: standalone robotics and navigation sales inside the technology category in the quarterly filing. A sustained double-digit increase in equipment sales would mean hospitals are still buying systems that pull through implant orders next year.
Sales Beat the Cautious Second-Half Plan
Three months ago, Zimmer Biomet's full-year outlook pointed to underlying sales — sales from businesses owned a year ago, at constant currency — slowing to between 1.1% and 3.1% in the second half of 2026 by our math. Instead, third-quarter underlying sales rose 3.7%, with the United States up 3.6% and international markets up 3.9%. Tornos promoted Gary Campbell, Brian Hatcher and Bradley Kessler "to accelerate U.S. commercial transformation" as the company converts independent sales agents into dedicated staff.
Because third-quarter sales beat the implied pace against the year's toughest comparison, Tornos raised the full-year underlying growth outlook by half a percentage point to a range of 3.0% to 3.5%. Beating that implied range shows that the earlier outlook was cautious, not that the U.S. sales overhaul is free of risk, because stages two and three of the territory conversions run through the end of 2027.
What to watch: the share of U.S. sales reps on dedicated contracts and their weekly surgical cases on the conference call. Higher weekly cases per rep would show that converted territories are gaining surgeon business rather than just avoiding disruption.
Free Cash Flow Jumped 34%
While reported profit fell on acquisition charges, cash generation moved the other way. Operating cash flow rose 33.7% from a year ago to $560.0 million in the third quarter, and free cash flow — operating cash minus spending on surgical instruments and factory equipment — climbed 34.2% to $372.4 million. That brought nine-month free cash flow to $926.5 million, up 15.3% from the first nine months of 2025.
The improvement came from lower cash tax outflows and collections on other assets, which more than offset $111.8 million of third-quarter spending on surgical instruments to support new product launches. Strong third-quarter cash generation puts the orthopedic group ahead of the 9% to 11% full-year free cash flow growth pace it targeted last quarter.
What to watch: fourth-quarter inventory and instrument spending in the full-year report. A smaller cash drain from inventory would allow free cash flow to finish above $1.3 billion for the year.
🐻 Bear Case
Knee Implant Sales Turned Negative
Tornos said the third quarter showed "broad-based performance" across the business. The numbers show that the company's largest product line shrank. Knee implants, which bring in 37% of total revenue, fell 3.1% as reported and 2.6% excluding currency moves to $767.5 million. That marks a drop from 4.5% growth in the first quarter and 0.1% in the second quarter.
Both regions lost ground: U.S. knee sales fell 2.0% to $431.3 million, and international knee sales dropped 3.4% excluding currency to $336.3 million. Even though hospitals bought more surgical robots over the past year, those placements have not stopped surgeons from switching to rival knee systems, so Hips and S.E.T. had to do all the work to keep total sales growing.
What to watch: U.S. knee sales growth in the fourth quarter. Another negative reading would show that U.S. sales-force changes and competitor robot rollouts are costing Zimmer Biomet share in its biggest market.
Sales Overheads Cut Into Operating Margin
Zimmer Biomet is spending heavily on its U.S. commercial overhaul, and those costs are eating into profit margins. Excluding one-offs, operating profit margin fell 1.4 percentage points from a year ago to 25.2% in the third quarter, by our math, after falling 2.1 points in the second quarter. On a reported basis, operating margin dropped 2.6 points to 14.9%.
- Selling, general and administrative costs, excluding one-offs: 41.5% of sales, up 1.0 percentage point from a year ago by our math
- Cost of making products, excluding one-offs and amortization: 28.3% of sales, up 0.9 percentage points by our math
- Profit per share, excluding one-offs: $1.90, unchanged from a year ago despite a 3.7% lower share count
Because higher sales-force overheads and manufacturing costs took 1.8 points out of the margin, earnings excluding one-offs fell 3.8% to $362.8 million, and only share buybacks kept per-share profit from falling. By our math, the raised full-year outlook still leaves fourth-quarter profit per share growing just 2.9%.
What to watch: the 2027 operating margin target when full-year results arrive in February. Continued margin decline next year would mean the dedicated sales model costs more to run permanently, not just during the transition.
Acquisitions Replaced Buybacks as Debt Rose
Last quarter, Zimmer Biomet raised its 2026 share repurchase target to up to $1.0 billion after buying back $500.8 million in the first half. In the third quarter, the company shifted its cash toward deals instead: it spent $359.4 million on business acquisitions and $25.0 million on intangible assets, by our math, while slowing share buybacks to $78.5 million.
Cash on hand fell to $399.9 million at the end of September, while debt due within one year rose to $1,287.7 million and net debt reached $7.10 billion. The deal spending also added $388.4 million to goodwill since December. Because short-term debt is now more than three times cash on hand, the company has less room to reach its $1.0 billion buyback goal without borrowing more.
What to watch: fourth-quarter share repurchases and short-term debt refinancing. Buying back less than $200 million in the fourth quarter would leave full-year repurchases well short of the $1.0 billion ceiling.
Risks this quarter didn't answer
Six standing concerns from prior quarters cannot be read from the third-quarter earnings release and depend on the conference call or the quarterly filing.
- U.S. sales-force conversion metrics: the release gives no figures on dedicated rep share, turnover, or weekly surgical cases to test stage-two progress.
- Asia Pacific margins and China distributor claims: regional profit margins and litigation updates live in the quarterly filing's footnotes.
- Trauma and restorative therapy drags: sub-category sales inside S.E.T. are only broken out in the quarterly filing.
- Reimbursement and price erosion: the release does not state whether quarterly price changes stayed inside the 1 percentage point annual ceiling.
- FDA filing for the Monogram autonomous robot: the release does not say whether the 510(k) application has been submitted.
- Permanent finance chief: the release names no replacement two quarters after the prior finance chief left.
💲 Other KPIs
Money owed by customers rose 13.6% from a year ago and 6.5% since December, by our math, outpacing third-quarter sales growth of 3.1%. Rising receivables absorbed $48.9 million of operating cash over the first nine months, more than triple the $15.6 million cash drain in the same period last year.
The average number of diluted shares fell 3.7% from 198.8 million a year ago, and dropped by 1.4 million shares from the second quarter. Zimmer Biomet spent $579.3 million on buybacks over the first nine months, which kept third-quarter per-share profit excluding one-offs flat even as net profit excluding one-offs fell 3.8%.
Spending on product development fell 8.6% from $115.9 million a year ago, dropping to 5.1% of sales from 5.8% in the prior year. The reduction follows the end of incremental compliance spending for European Union medical device rules at the start of 2026 and helped cushion the rise in sales overheads.
🔮 Guidance
Raised. The plan now calls for sales from businesses owned a year ago, excluding currency, to grow 3.25% at the middle of the range, up half a point. By our math, that leaves fourth-quarter growth at about 2.6%, down from 3.7% in Q3 against a 5.4% year-ago base. This is the second raise this year: +0.0 points, +0.75 points, +0.5 points.
Raised. The middle of the range moved up 0.45 percentage points to 4.35% growth, which includes about 1.1 percentage points from the Paragon 28 acquisition prior to its April anniversary. Because the acquisition is now in the prior-year base, fourth-quarter constant-currency growth matches the 2.6% underlying rate implied by the full-year plan.
Raised. The bottom of the range moved up half a point, lifting the middle of the range to 4.65% growth. By our math, with nine-month sales already up 5.7%, the full-year outlook leaves fourth-quarter reported sales growing about 2.0%, down from 3.1% in Q3 as currency turns slightly negative.
Cut. The company halved its expected full-year currency tailwind to 0.25 percentage points after exchange rates reduced third-quarter reported sales by 0.6 points. After a 0.7-point currency benefit across the first nine months, the revised outlook implies currency will be a drag again in the fourth quarter.
Raised. The middle of the range rose 2 cents to $8.55 per share, or 4.3% growth for the year. By our math, that leaves fourth-quarter profit per share excluding one-offs at $2.44 to $2.54, up 2.9% at the middle of the range from $2.42 a year ago. Third straight raise, each smaller than the last: +$0.10, +$0.055, +$0.02.
❓ Key Questions
Why did U.S. and international knee sales shrink?
Knee implant sales fell 2.6% excluding currency, with the U.S. down 2.0% and international down 3.4%. Investors need to know how much came from U.S. sales-force disruption versus competitive losses, and when robot placements will begin lifting knee implant volumes.
What did Zimmer Biomet buy for $359 million in Q3?
The cash flow statement shows $359.4 million spent on business combinations in the third quarter, while share buybacks slowed to $78.5 million. Management only flagged $245 million of deals last quarter, leaving over $110 million of cash outflows unexplained in the release.
What are the current U.S. sales-force conversion numbers?
Zimmer Biomet promoted three executives to speed up its U.S. sales-force overhaul, while sales overheads rose 1 percentage point of revenue. Management has not updated its dedicated rep share or weekly surgical cases per rep since the first quarter.
Has the Monogram robot application gone to the FDA?
Last quarter management said it would file for FDA clearance on its acquired Monogram semi-autonomous robot in the near future ahead of an early 2027 launch. The third-quarter release did not mention the filing.