Puerto Rico hurricane damage affecting Zimmer Biomet revenue

Zimmer Biomet’s financial struggles in 2017 are expected to linger into 2018, further complicated by hurricanes that devastated Puerto Rico where the Warsaw-based orthopedic company has two plants.

In a conference call with shareholders earlier this month, the company announced third-quarter results fell short of expectations.

The company announced third-quarter 2017 revenues decreased by 1.1 percent from the third quarter of 2016, representing a decrease of 1.5 percent on a constant currency basis. Sales in the Americas decreased by 3 percent compared to the same time a year ago.

The company pointed to several factors behind the lagging sales including “softened domestic market” conditions, ongoing remedial efforts with the former Biomet plant along U.S. 30 and damage left in the wake of the hurricanes that struck Puerto Rico.

“Like many, we have encountered problems of mainly consistent power causing a more gradual return to full production than originally anticipated,” said Daniel Florin, interim chief executive officer and chief financial officer.

Puerto Rico’s infrastructure was devastated by hurricanes Irma and Maria this summer and the territory of the United States continues to have several power issues.

“Given the continued instability of infrastructure in Puerto Rico and current safety stock levels, we now expect some minor sales disruption in the fourth quarter and into 2018,” Florin said.

During the third quarter, Zimmer’s revenue was affected by the storms, resulting in approximately $5 million of headwind, Florin said.

In another issue, the company is still implementing changes at the Biomet legacy plant along U.S. 30 after the Food and Drug Administration cited 14 “observations” nearly a year ago for issues that include quality control. The company has been working since then to remedy the issues, which have slowed supply lines.

Florin said the company “made good progress in the execution of our quality remediation plan at the Warsaw North Campus and we remain on track to achieve the key milestones laid out” in their response to the FDA.

“These efforts will continue through 2018 as we have previously highlighted and will remain a key focus of our entire company,” he said.

Florin was blunt about the company’s desire to do better.

“We know that Zimmer Biomet can and must perform at a higher level and significant work continues to ensure that we deliver on our commitments,” he said.

In an article in Medical Device and Diagnostic Industry website, News Editor Amanda Pederson describes Zimmer Biomet’s past year as “touch and go.”

Pederson wrote, “In January, the company went back to the drawing board and unveiled plans to invest $170 million to fix its supply chain and manufacturing and quality systems. Then, in July, David Dvorak resigned as CEO.”

While the story’s headline (“Can A New CEO Right The Ship Before Zimmer Sinks?”) seems a bit inflammatory, the article goes on to offer some optimism.

One bright spot, according to the report,  was the launch of the company’s Persona Partial Knee System earlier this year. The implant is the first major new product developed by the company since its merger with Biomet was finalized two years ago.

Florin said the product launch filled a significant gap in the company’s knee portfolio.

Zimmer Biomet declined comment about the online article.

Zimmer Biomet is one of the largest employers in Kosciusko County and joins DePuy Synthes – another Warsaw-based firm – as two top-tier orthopedic manufacturers in the world.