ZBH

Zimmer Biomet is a slow-but-steady orthopedics franchise whose headline FY2025 looks worse than the underlying business. Revenue rose 7.2% to $8.23B, but net income fell 22% to $705M and diluted EPS dropped to $3.55. The MD&A is explicit that the earnings decline was largely self-inflicted and non-recurring: ~$170M of inventory and instrument charges on product lines being discontinued, acquisition costs and higher interest expense from buying Paragon 28 (closed Apr 2025) and Monogram (Oct 2025), U.S. tariffs, and higher performance compensation. Management guides 2026 operating profit to increase as those charges don't repeat and restructuring savings land. Operating cash flow is genuinely healthy at $1.70B (+13.2%) against only $225M of capex, so cash generation is far better than the depressed GAAP earnings imply.

The problem is quality and price, not solvency. Return on equity is a thin 5.6% and net margin just 8.6% — poor for a medtech leader — while much of the 7.2% top-line came from acquisition (Paragon 28 added 2.5 points) and FX (0.8 points), so organic growth is modest. The 2026 outlook of only 2.5%-4.5% sales growth, with management flagging headwinds from 'changes to our go-to-market strategy and execution in the U.S.' plus price declines, points to a low-single-digit organic franchise. Leverage is climbing to fund deals: long-term debt jumped 29.8% to $6.93B (plus $587M current), against just $592M of cash, and total liabilities rose 16.8%. The balance sheet (liabilities/equity 0.82x, $11.6B retained earnings) is sound, but the trend is the wrong way and net interest expense is now a recurring drag.