Zimmer Biomet Q3 2026 Earnings: Diversified Growth Offsets Knee Weakness

Zimmer Biomet (NYSE: ZBH) reported Q3 2026 net sales of $2.063 billion, up 3.1% year over year, while diluted EPS fell 13.8% to $1.00 from $1.16 for the quarter ended September 30, 2026. Adjusted EPS remained at $1.90, and free cash flow increased to $372.4 million as growth in Hips, S.E.T., and Technology & Data, Bone Cement and Surgical offset lower Knee sales.

Core Financial Results

Revenue increased 3.7% in constant currency, compared with reported growth of 3.1%, reflecting a 0.6-percentage-point currency headwind. Profit performance was weaker: selling, general and administrative expense rose to $855.0 million from $811.4 million, while acquisition, integration, divestiture and related items moved from $34.4 million of income to $19.6 million of expense.

These factors contributed to lower GAAP and adjusted operating profit. Cash generation moved in the opposite direction, with both operating cash flow and free cash flow increasing by about 34%.

Adjusted operating profit, adjusted EPS, and free cash flow are non-GAAP measures.

Business and Product Performance

Performance was divided between the declining Knee category and growth across the rest of the disclosed portfolio. Hips and S.E.T. each grew approximately 7% in constant currency, while Technology & Data, Bone Cement and Surgical recorded double-digit growth.

Knee sales declined in both major regions. U.S. Knee revenue fell 2.0%, while international Knee revenue decreased 4.5% as reported and 3.4% in constant currency. By comparison, international Hip sales increased 8.2% in constant currency, exceeding the category’s 5.8% U.S. growth.

S.E.T. comprises Sports Medicine, Biologics, Foot and Ankle, Upper Extremities, Trauma, Craniomaxillofacial and Thoracic products.

Sales Mix Broadened, but Margin Pressure Capped EPS Growth

The quarter showed that Zimmer Biomet’s expansion beyond Knees is contributing meaningfully to sales growth. Management said Hips, S.E.T., and Technology & Data, Bone Cement and Surgical together represent roughly two-thirds of the business, reducing the company’s dependence on its largest but declining category.

That broader growth did not translate into higher adjusted earnings. Adjusted gross margin contracted to 71.7% from 72.6%, while adjusted operating margin fell to 25.1% from 26.5%. Adjusted net earnings declined to $362.8 million from $377.0 million.

Adjusted EPS nevertheless remained at $1.90 because diluted weighted-average shares decreased to 191.4 million from 198.8 million. The lower share count largely offset the decline in adjusted earnings, meaning flat adjusted EPS did not reflect flat underlying profit.

Cash Flow and Balance Sheet

Quarterly operating cash flow increased by $141.3 million to $560.0 million. Free cash flow rose by $94.8 million even as combined additions to instruments and other property, plant and equipment increased to $187.6 million from $141.1 million.

For the first nine months of 2026, operating cash flow reached $1.367 billion and free cash flow was $926.5 million, compared with $1.180 billion and $803.8 million, respectively, in the prior-year period. Zimmer Biomet used $579.3 million for share repurchases and $139.2 million for dividends during the nine months.

Cash and cash equivalents stood at $399.9 million on September 30, down from $591.9 million at the end of 2025. Total debt was nearly unchanged at $7.504 billion, but net debt increased to $7.104 billion from $6.927 billion because of the lower cash balance. Inventory also rose to $2.367 billion from $2.286 billion.

Full-Year 2026 Guidance

Zimmer Biomet raised its organic constant-currency sales growth range and slightly increased adjusted EPS guidance. The company also raised both ends of its constant-currency revenue range, although the expected foreign-exchange benefit was reduced from 0.5% to 0.25%.

Organic constant-currency guidance excludes the Paragon 28 acquisition’s sales impact through the first anniversary of the April 2025 acquisition. Adjusted EPS guidance is a forward-looking non-GAAP measure for which the company did not provide a GAAP reconciliation.

Management’s View

Chairman, President and CEO Ivan Tornos attributed the quarter’s broad-based growth to Zimmer Biomet’s diversification strategy, product innovation and commercial execution. Management highlighted the upper-single-digit or double-digit growth rates across Hips, S.E.T., and Technology & Data, Bone Cement and Surgical as the basis for raising full-year organic growth and adjusted EPS guidance.

Risks Investors Should Monitor

• Continued Knee weakness: Knees remained Zimmer Biomet’s largest disclosed product category at $767.5 million, but sales declined in both the U.S. and international markets. Continued contraction could offset growth elsewhere in the portfolio.
• Margin compression: Adjusted gross margin fell 90 basis points and adjusted operating margin declined 140 basis points. Further cost growth ahead of revenue would limit the conversion of sales growth into earnings.
• Foreign-exchange pressure: Currency reduced Q3 total reported growth by 0.6 percentage points and international reported growth by 1.5 percentage points. The company also reduced the expected full-year currency benefit.
• Liquidity and leverage: Cash declined while net debt increased, and the current portion of long-term debt rose to $1.288 billion from $587.1 million at the end of 2025. These movements warrant monitoring despite improved cash generation.

Summary

Zimmer Biomet’s Q3 2026 results showed broader growth across Hips, S.E.T., and technology-related products, but declining Knee sales and narrower adjusted margins prevented revenue growth from producing higher adjusted earnings. Stronger cash flow and raised full-year organic growth guidance provided support, while future results will depend on sustaining diversified product growth, stabilizing Knees and improving the conversion of revenue into profit.