Key Takeaways

Shares of Zimmer Biomet Holdings ( ZBH ) dropped nearly 9% after the manufacturer of artificial joint replacements and other orthopedic products warned the implementation of a new enterprise resources planning (ERP) system would hit sales and profits in 2024.

In a presentation Thursday at the Wells Fargo 2024 Healthcare Conference, Zimmer executives said the company switched from a legacy ERP platform to one from SAP, a transition that has run into complications. Zimmer's management team expects the issue to cause a 1% drag on revenue this year, with the headwinds mostly abating by the end of the fourth quarter.

ERP software aims to integrate business processes — from inventory tracking and sales to human resources and beyond. Zimmer's ERP transition is reportedly causing production issues and impeding shipments, especially in its sports, extremities, and trauma segments.

Analyst Reactions and Stock Performance

Analysts at Stifel predicted a potential 210- basis-point impact on third-quarter sales from the ERP transition, exacerbating what is already a difficult market environment. Meanwhile, Evercore ISI analysts said the issue could reduce earnings per share (EPS) by 15 cents.

Zimmer Biomet shares had been trending higher since Aug. 7, when the company released its second-quarter results and announced an agreement to acquire OrthoGrid Systems, which specializes in artificial intelligence guidance systems for hip replacement surgery.

Thursday's losses reversed those post-earnings gains. Zimmer Biomet stock is down about 14% year to date.

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