Stryker Takes the Pain, But Underlying Picture Looks Pretty Strong

Stryker has issued its second quarter financial report Second Quarter Highlights. Compared with the equivalent period a year ago, sales are reportedly up 5% to $2.2 billion. Earnings have been clobbered however, down over a third compared with last year, due exclusively to costs associated with the previously disclosed voluntary recall of the Rejuvenate and ABG II modular-neck hip stems.

Background

Consolidated net sales of $2.2 billion increased 5.0% in the quarter compared to the prior year. Under the surface the picture shows volume growth and mix changes delivered 7.8% with a further 0.6% as a result of acquisitions. This rather healthy growth was rather watered down by 1.9% due to changes in price and 1.5% due to the unfavorable impact of foreign currency exchange rates on net sales. So, excluding the impact of acquisitions, net sales increased 5.9% in constant currency over the prior year.

By product group

Reconstructive net sales increased 5.6% in the quarter compared with a year ago, and here too things could have been better still without the impact of downward price pressure and foreign currency exchange. Excluding the impact of acquisitions, Reconstructive net sales increased 6.5% in constant currency over the prior year.

MedSurg net sales of $819 million increased 4.2% in the quarter compared to the prior year, as reported, and 4.8% in constant currency. Net sales in the quarter grew by 4.8% due to increased unit volume and changes in product mix but were unfavorably impacted by 0.1% due to changes in price and 0.6% due to the impact of foreign currency exchange rates on net sales.

Neurotechnology and Spine net sales of $414 million increased 5.4% in the quarter compared to the prior year, as reported, and 7.5% in constant currency. Net sales in the quarter grew by 8.8% due to increased unit volume and changes in product mix and 0.8% as a result of acquisitions. Net sales in the quarter were unfavorably impacted by 2.1% due to changes in price and 2.0% due to the unfavorable impact of foreign currency exchange rates on net sales. Excluding the impact of acquisitions, Neurotechnology and Spine net sales increased 6.7% in constant currency over the prior year.

Earnings

Reported net earnings showed what looks on the face of it as a dramatic 34.5% decrease compared with prior year. Underpinning the decrease however is a charge of $170 million ($120 million net of tax or $0.31 per diluted share) related to the previously disclosed voluntary recall of the Rejuvenate and ABG II modular-neck hip stems. In addition, a charge of $19 million ($22 million net of tax or $0.06 per diluted share) was recorded in the quarter related to two previously disclosed United States regulatory matters.

Reported net earnings in the quarter also includes acquisition and integration related charges of $18 million ($15 million net of taxes or $0.04 per diluted share) related to the Neurovascular, Surpass and Trauson acquisitions and restructuring and related charges of $19 million ($10 million net of taxes or $0.03 per diluted share). These charges reduced the reported gross profit margin from 67.7% to 67.0% and the reported operating income margin from 23.3% to 13.1%.

Company comments

“We delivered another solid quarter of operational results with balanced sales growth across all segments and geographies, as well as strong cash flow performance,” said Kevin A. Lobo, President and Chief Executive Officer. “Our earnings per share was impacted by foreign exchange headwinds which we expect to continue throughout the year.”

Source: Stryker Corporation