Zimmer Biomet (ZBH) Q2 2025: Paragon 28 Fuels Growth Amid Cost Pressures

In this post, we are digging into the latest income statement from Zimmer Biomet Holdings, Inc. to see how the medical device giant is performing halfway through 2025. By analyzing their quarterly filing, we can look past the headline numbers to understand the true costs of growth and the current pressures on profitability.

You can view the full 10-Q filing here.

Zimmer Biomet (ZBH) is a global leader in musculoskeletal healthcare. While they are historically known for their knee and hip replacements, they also compete heavily in sports medicine, trauma, and surgical robotics—a sector dominated by major players like Stryker and Johnson & Johnson. The company’s second-quarter results for 2025 show a business actively aggressively expanding its portfolio, balancing solid top-line expansion against the heavy expenses associated with acquisition strategies.

Visualizing the Quarter

To get a snapshot of how revenue flows through to the bottom line, take a look at the diagram below.

Revenue: Powered by Acquisitions

Zimmer Biomet reported net sales of $2.08 billion for the quarter, a healthy 7.0% increase compared to the same period in 2024. While organic demand played a role, a significant portion of this growth was fueled by the recent acquisition of Paragon 28, a company specializing in the foot and ankle segment.

The impact of this strategic buyout is most visible in the S.E.T. (Sports Medicine, Extremities, Trauma, Craniomaxillofacial, and Thoracic) category. This segment surged 17.3% year-over-year to $550.6 million. It is important to contextualize this jump: the Paragon 28 acquisition contributed 11.1 percentage points to that growth rate. This indicates that the acquisition was the primary driver of the double-digit expansion in this category, rather than organic sales alone.

The core joint reconstruction business showed more modest, steady growth:

• Knees: Sales rose 3.1% to $826.0 million.
• Hips: Sales increased 5.8% to $536.1 million.

The Cost of Buying Growth

While revenue is climbing, the bottom line reflects the heavy lifting required to integrate a major new asset. Net earnings for the quarter dropped to $153.4 million ($0.77 per share), down significantly from $243.1 million ($1.18 per share) in the prior year.

This decline is a textbook example of the immediate financial friction caused by M&A activity. Several specific factors weighed on profitability:

• Acquisition & Integration Costs: The company incurred $78.9 million in expenses related to acquisition, integration, and divestiture activities this quarter. This is a massive jump from just $5.2 million in the prior year, directly reflecting the Paragon 28 deal.
• Rising Interest Expense: Net interest expense climbed to $79.3 million (up from $51.1 million), largely driven by the debt financing required to fund the acquisition.
• Amortization: Intangible asset amortization increased to $160.6 million. When a medical device company acquires another, they inherit intellectual property and technology which must be amortized over time, creating a drag on GAAP earnings.

Outlook and Headwinds

Management expects full-year 2025 revenue growth between 6.7% and 7.7%, largely banking on the continued integration of Paragon 28 and stable market demand. However, the company faces headwinds beyond just integration costs.

Inflation continues to impact manufacturing costs, and the filing specifically notes an anticipated $40 million impact from tariffs for the full year. Because the company capitalizes these tariffs into the cost of inventory, the financial impact is expected to be more pronounced in the second half of the year as that inventory is sold.

In summary, Zimmer Biomet is successfully buying growth and expanding its footprint in the high-growth foot and ankle market. However, Q2 2025 serves as a reminder that such strategic pivots are expensive in the short term. The company is currently trading near-term earnings for long-term market share, a common but risky maneuver in the competitive med-tech landscape.