Stryker (NYSE:SYK) reported operating results for the first quarter
of 2019:
First Quarter Highlights
- Reported net sales increased 8.5% to $3.5
billion
- Organic net sales increased 7.3%
- Reported operating income margin of 15.0%
- Adjusted operating income margin(1) expanded 10 bps
to 25.1%
- Reported EPS decreased 6.0% to $1.09
- Adjusted EPS(1) increased 11.9% to $1.88, exceeding the
high end of guidance range
|
First Quarter Net Sales Growth
Overview |
|
Reported |
|
Foreign Currency Exchange |
|
Constant Currency |
|
Acquisitions |
|
Organic |
Orthopaedics |
2.8 |
% |
|
(2.3 |
)% |
|
5.1 |
% |
|
— |
% |
|
5.0 |
% |
MedSurg |
8.2 |
|
|
(1.8 |
) |
|
10.0 |
|
|
1.1 |
|
|
8.9 |
|
Neurotechnology and
Spine |
20.7 |
|
|
(2.5 |
) |
|
23.2 |
|
|
15.4 |
|
|
7.8 |
|
Total |
8.5 |
% |
|
(2.1 |
)% |
|
10.6 |
% |
|
3.3 |
% |
|
7.3 |
% |
"With over 7% organic sales growth in the first
quarter, our multi-year momentum continued across our businesses
and regions," said Kevin A. Lobo, Chairman and Chief Executive
Officer. "We remain committed to providing compelling value to our
customers through innovative products and services, both internally
developed and acquired, which translate to strong financial results
for our shareholders."
Sales Analysis
Consolidated net sales of $3.5 billion increased
8.5% in the quarter and 10.6% in constant currency. Organic net
sales increased 7.3% in the quarter including 8.7% from increased
unit volume partially offset by 1.4% from lower prices.Orthopaedics
net sales of $1.3 billion increased 2.8% in the quarter and 5.1% in
constant currency. Organic net sales increased 5.0% in the quarter
including 7.1% from increased unit volume partially offset by 2.1%
from lower prices.MedSurg net sales of $1.5 billion increased 8.2%
in the quarter and 10.0% in constant currency. Organic net sales
increased 8.9% in the quarter including 9.9% from increased unit
volume partially offset by 1.0% from lower prices.Neurotechnology
and Spine net sales of $0.7 billion increased 20.7% in the quarter
and 23.2% in constant currency. Organic net sales increased 7.8% in
the quarter including 8.9% from increased unit volume partially
offset by 1.1% from lower prices.
Earnings Analysis
Reported net earnings of $412 million decreased
7.0% in the quarter. Reported net earnings per diluted share of
$1.09 decreased 6.0% in the quarter. Reported gross profit margin
and reported operating income margin were 64.9% and 15.0% in the
quarter. Adjusted gross profit margin(1) and adjusted
operating income margin(1) were 65.8% and 25.1%, an improvement of
10 basis points in the quarter. Adjusted net earnings(1) of $714
million increased 11.9% in the quarter. Adjusted net earnings per
diluted share(1) of $1.88 increased 11.9% in the quarter.
2019 Outlook
Based on our first quarter performance we now
expect 2019 organic net sales growth to be in the range of 6.8% to
7.5% and expect adjusted net earnings per diluted share(2) to be in
the range of $8.05 to $8.20. For the second quarter we expect
adjusted net earnings per diluted share(2) to be in the range of
$1.90 to $1.95. If foreign currency exchange rates hold near
current levels, we expect net sales in the second quarter will be
negatively impacted by approximately 1.5% and full year will be
negatively impacted by approximately 1.0%, and net earnings per
diluted share will be negatively impacted by $0.01 to $0.03 in the
second quarter and negatively impacted by $0.05 to $0.10 in the
full year.
(1) A reconciliation of the non-GAAP financial
measures: adjusted gross profit margin, adjusted operating income
and adjusted operating income margin, adjusted net earnings and
adjusted net earnings per diluted share, to the most directly
comparable GAAP measures: gross profit margin, operating income and
operating income margin, net earnings and net earnings per diluted
share, and other important information accompanies this press
release.
(2) We are unable to present a quantitative
reconciliation of our expected net earnings per diluted share to
expected adjusted net earnings per diluted share as we are unable
to predict with reasonable certainty and without unreasonable
effort the impact and timing of restructuring-related and other
charges, acquisition-related expenses and fair value adjustments to
inventory and the outcome of certain regulatory, legal and tax
matters. The financial impact of these items is uncertain and is
dependent on various factors, including timing, and could be
material to our Consolidated Statements of Earnings.
Conference Call on Tuesday,
April 23, 2019
As previously announced, Stryker will host a
conference call on Tuesday, April 23, 2019 at 4:30 p.m., Eastern
Time, to discuss the Company's operating results for the quarter
ended March 31, 2019 and provide an operational update.
To participate in the conference call dial (877)
702-4565 (domestic) or (647) 689-5532 (international) and be
prepared to provide conference ID number 4854803 to the
operator.
A simultaneous webcast of the call will be
accessible via the Company's website at www.stryker.com. The call
will be archived on the Investor Relations page of this site.
A recording of the call will also be available
from 8:00 p.m., Eastern Time, on Tuesday, April 23, 2019, until
11:59 p.m., Eastern Time, on Tuesday, April 30, 2019. To hear this
recording, you may dial (800) 585-8367 (domestic) or (416) 621-4642
(international) and enter conference ID number 4854803.
Caution Concerning Forward-Looking
Statements
This press release contains information that
includes or is based on forward-looking statements within the
meaning of the federal securities laws that are subject to various
risks and uncertainties that could cause our actual results to
differ materially from those expressed or implied in such
statements. Such factors include, but are not limited to: weakening
of economic conditions that could adversely affect the level of
demand for our products; pricing pressures generally, including
cost-containment measures that could adversely affect the price of
or demand for our products; changes in foreign exchange markets;
legislative and regulatory actions; unanticipated issues arising in
connection with clinical studies and otherwise that affect U.S.
Food and Drug Administration approval of new products; potential
supply disruptions; changes in reimbursement levels from
third-party payors; a significant increase in product liability
claims; the ultimate total cost with respect to recall-related
matters; the impact of investigative and legal proceedings and
compliance risks; resolution of tax audits; the impact of the
federal legislation to reform the United States healthcare system;
costs to comply with medical device regulations; changes in
financial markets; changes in the competitive environment; our
ability to integrate acquisitions; and our ability to realize
anticipated cost savings. Additional information concerning these
and other factors is contained in our filings with the U.S.
Securities and Exchange Commission, including our Annual Report on
Form 10-K and Quarterly Reports on Form 10-Q.
Stryker is one of the world's leading medical
technology companies and, together with our customers, we are
driven to make healthcare better. The Company offers innovative
products and services in Orthopaedics, Medical and
Surgical, and Neurotechnology and Spine that help
improve patient and hospital outcomes. More information is
available at www.stryker.com.
For investor inquiries please
contact:
Katherine A. Owen, Vice President, Strategy
& Investor Relations at 269-385-2600 or
katherine.owen@stryker.com
For media inquiries please
contact:
Yin Becker, Vice President, Communications,
Public Affairs and Corporate Marketing at 269-385-2600 or
yin.becker@stryker.com
STRYKER CORPORATION |
For the Three Months March 31 |
(Unaudited - Millions of Dollars, Except Per
Share Amounts) |
CONSOLIDATED STATEMENTS OF
EARNINGS |
|
|
|
Three Months |
|
2019 |
|
2018 |
|
% Change |
Net
sales |
$ |
3,516 |
|
|
$ |
3,241 |
|
|
8.5 |
% |
Cost of
sales |
1,233 |
|
|
1,104 |
|
|
11.7 |
|
Gross
profit |
$ |
2,283 |
|
|
$ |
2,137 |
|
|
6.8 |
% |
% of
sales |
64.9 |
% |
|
65.9 |
% |
|
|
Research,
development and engineering expenses |
225 |
|
|
204 |
|
|
10.3 |
|
Selling,
general and administrative expenses |
1,403 |
|
|
1,236 |
|
|
13.5 |
|
Recall
charges |
13 |
|
|
4 |
|
|
225.0 |
|
Amortization of intangible assets |
114 |
|
|
102 |
|
|
11.8 |
|
Total
operating expenses |
$ |
1,755 |
|
|
$ |
1,546 |
|
|
13.5 |
% |
Operating
income |
$ |
528 |
|
|
$ |
591 |
|
|
(10.7 |
)% |
% of
sales |
15.0 |
% |
|
18.2 |
% |
|
|
Other
income (expense), net |
(48 |
) |
|
(49 |
) |
|
(2.0 |
) |
Earnings before
income taxes |
$ |
480 |
|
|
$ |
542 |
|
|
(11.4 |
)% |
Income
taxes |
68 |
|
|
99 |
|
|
(31.3 |
) |
Net
earnings |
$ |
412 |
|
|
$ |
443 |
|
|
(7.0 |
)% |
Net earnings
per share of common stock: |
|
|
|
|
|
Basic |
$ |
1.10 |
|
|
$ |
1.18 |
|
|
(6.8 |
)% |
Diluted |
$ |
1.09 |
|
|
$ |
1.16 |
|
|
(6.0 |
)% |
Weighted-average shares outstanding (in
millions): |
|
|
|
|
|
Basic |
373.3 |
|
374.0 |
|
|
Diluted |
379.3 |
|
380.7 |
|
|
CONDENSED CONSOLIDATED BALANCE
SHEETS |
|
March 31 |
|
December 31 |
|
2019 |
|
2018 |
Assets |
|
|
|
Cash and
cash equivalents |
$ |
1,674 |
|
|
$ |
3,616 |
|
Marketable securities |
84 |
|
|
83 |
|
Accounts
receivable, net |
2,284 |
|
|
2,332 |
|
Inventories |
3,064 |
|
|
2,955 |
|
Prepaid
expenses and other current assets |
782 |
|
|
747 |
|
Total current assets |
$ |
7,888 |
|
|
$ |
9,733 |
|
Property,
plant and equipment, net |
2,297 |
|
|
2,291 |
|
Goodwill
and other intangibles, net |
12,950 |
|
|
12,726 |
|
Noncurrent deferred income tax assets |
1,631 |
|
|
1,678 |
|
Other
noncurrent assets |
1,171 |
|
|
801 |
|
Total
assets |
$ |
25,937 |
|
|
$ |
27,229 |
|
Liabilities and
shareholders' equity |
|
|
|
Current
liabilities |
$ |
3,713 |
|
|
$ |
4,807 |
|
Long-term
debt, excluding current maturities |
7,950 |
|
|
8,486 |
|
Income
taxes |
1,218 |
|
|
1,228 |
|
Other
noncurrent liabilities |
1,363 |
|
|
978 |
|
Shareholders' equity |
11,693 |
|
|
11,730 |
|
Total
liabilities and shareholders' equity |
$ |
25,937 |
|
|
$ |
27,229 |
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
|
Three Months |
|
2019 |
|
2018 |
Operating
activities |
|
|
|
Net earnings |
$ |
412 |
|
|
$ |
443 |
|
Depreciation |
76 |
|
|
74 |
|
Amortization of intangible assets |
114 |
|
|
102 |
|
Changes
in operating assets and liabilities and other, net |
(289 |
) |
|
(322 |
) |
Net cash
provided by operating activities |
$ |
313 |
|
|
$ |
297 |
|
Investing
activities |
|
|
|
Acquisitions, net of cash acquired |
$ |
(180 |
) |
|
$ |
(704 |
) |
Change in
marketable securities, net |
(1 |
) |
|
(24 |
) |
Purchases
of property, plant and equipment |
(122 |
) |
|
(121 |
) |
Net cash used
in investing activities |
$ |
(303 |
) |
|
$ |
(849 |
) |
Financing
activities |
|
|
|
(Payments) borrowings of debt, net |
$ |
(1,353 |
) |
|
$ |
694 |
|
Dividends
paid |
(195 |
) |
|
(176 |
) |
Repurchases of common stock |
(307 |
) |
|
(300 |
) |
Other
financing, net |
(92 |
) |
|
(73 |
) |
Net cash (used
in) provided by financing activities |
$ |
(1,947 |
) |
|
$ |
145 |
|
Effect of
exchange rate changes on cash and cash equivalents |
(5 |
) |
|
44 |
|
Change in cash
and cash equivalents |
$ |
(1,942 |
) |
|
$ |
(363 |
) |
STRYKER CORPORATION |
For the Three Months March 31 |
(Unaudited - Millions of Dollars) |
SALES GROWTH ANALYSIS |
|
Three Months |
|
|
|
Percentage Change |
|
2019 |
2018 |
|
As Reported |
|
Constant Currency |
Geographic: |
|
|
|
|
|
|
United
States |
$ |
2,579 |
|
$ |
2,314 |
|
|
11.5 |
% |
|
11.5 |
% |
International |
937 |
|
927 |
|
|
1.1 |
|
|
8.3 |
|
Total |
$ |
3,516 |
|
$ |
3,241 |
|
|
8.5 |
% |
|
10.6 |
% |
Segment: |
|
|
|
|
|
|
Orthopaedics |
$ |
1,250 |
|
$ |
1,216 |
|
|
2.8 |
% |
|
5.1 |
% |
MedSurg |
1,544 |
|
1,427 |
|
|
8.2 |
|
|
10.0 |
|
Neurotechnology and Spine |
722 |
|
598 |
|
|
20.7 |
|
|
23.2 |
|
Total |
$ |
3,516 |
|
$ |
3,241 |
|
|
8.5 |
% |
|
10.6 |
% |
SUPPLEMENTAL SALES GROWTH
ANALYSIS |
|
Three Months |
|
|
|
|
|
|
|
United States |
|
International |
|
|
|
Percentage Change |
|
2019 |
2018 |
|
As Reported |
|
Constant Currency |
|
As Reported |
|
As Reported |
Constant Currency |
Orthopaedics: |
|
|
|
|
|
|
|
|
|
|
|
Knees |
$ |
439 |
|
$ |
419 |
|
|
4.9 |
% |
|
7.0 |
% |
|
6.6 |
% |
|
0.5 |
% |
8.1 |
% |
Hips |
336 |
|
331 |
|
|
1.5 |
|
|
4.1 |
|
|
4.0 |
|
|
(2.4 |
) |
4.4 |
|
Trauma
and Extremities |
396 |
|
389 |
|
|
1.7 |
|
|
4.1 |
|
|
3.4 |
|
|
(1.2 |
) |
5.4 |
|
Other |
79 |
|
77 |
|
|
2.1 |
|
|
3.5 |
|
|
(0.3 |
) |
|
12.5 |
|
21.4 |
|
|
$ |
1,250 |
|
$ |
1,216 |
|
|
2.8 |
% |
|
5.1 |
% |
|
4.4 |
% |
|
(0.6 |
)% |
6.5 |
% |
MedSurg: |
|
|
|
|
|
|
|
|
|
|
|
Instruments |
$ |
478 |
|
$ |
412 |
|
|
16.1 |
% |
|
18.0 |
% |
|
20.6 |
% |
|
1.2 |
% |
8.9 |
% |
Endoscopy |
470 |
|
444 |
|
|
5.7 |
|
|
7.5 |
|
|
7.5 |
|
|
(1.0 |
) |
7.5 |
|
Medical |
531 |
|
511 |
|
|
4.0 |
|
|
5.8 |
|
|
9.2 |
|
|
(11.2 |
) |
(4.6 |
) |
Sustainability |
65 |
|
60 |
|
|
9.0 |
|
|
9.0 |
|
|
8.4 |
|
|
117.6 |
|
128.2 |
|
|
$ |
1,544 |
|
$ |
1,427 |
|
|
8.2 |
% |
|
10.0 |
% |
|
11.9 |
% |
|
(4.4 |
)% |
3.1 |
% |
Neurotechnology
and Spine: |
|
|
|
|
|
|
|
|
|
|
|
Neurotechnology |
$ |
465 |
|
$ |
410 |
|
|
13.6 |
% |
|
16.1 |
% |
|
16.0 |
% |
|
9.5 |
% |
16.2 |
% |
Spine |
257 |
|
188 |
|
|
36.3 |
|
|
38.6 |
|
|
40.9 |
|
|
23.6 |
|
32.0 |
|
|
$ |
722 |
|
$ |
598 |
|
|
20.7 |
% |
|
23.2 |
% |
|
24.7 |
% |
|
12.9 |
% |
20.1 |
% |
Total |
$ |
3,516 |
|
$ |
3,241 |
|
|
8.5 |
% |
|
10.6 |
% |
|
11.5 |
% |
|
1.1 |
% |
8.3 |
% |
SUPPLEMENTAL INFORMATION -
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
We supplement the reporting of our financial
information determined under accounting principles generally
accepted in the United States (GAAP) with certain non-GAAP
financial measures, including: percentage sales growth; percentage
sales growth in constant currency; percentage organic sales
growth; adjusted gross profit; adjusted selling, general and
administrative expenses; adjusted operating income; adjusted
effective income tax rate; adjusted net earnings; and adjusted net
earnings per diluted share (Diluted EPS). We believe that these
non-GAAP financial measures provide meaningful information to
assist investors and shareholders in understanding our financial
results and assessing our prospects for future performance.
Management believes percentage sales growth in constant currency
and the other adjusted measures described above are important
indicators of our operations because they exclude items that may
not be indicative of or are unrelated to our core operating results
and provide a baseline for analyzing trends in our underlying
businesses. Management uses these non-GAAP financial measures for
reviewing the operating results of reportable business segments and
analyzing potential future business trends in connection with our
budget process and bases certain management incentive compensation
on these non-GAAP financial measures.
To measure percentage sales growth in constant
currency, we remove the impact of changes in foreign currency
exchange rates that affect the comparability and trend of sales.
Percentage sales growth in constant currency is calculated by
translating current and prior year results at the same foreign
currency exchange rate. To measure percentage organic sales growth,
we remove the impact of changes in foreign currency exchange rates
and acquisitions, which affect the comparability and trend of
sales. Percentage organic sales growth is calculated by translating
current year results at prior year average foreign currency
exchange rates excluding the impact of acquisitions. To measure
earnings performance on a consistent and comparable basis, we
exclude certain items that affect the comparability of operating
results and the trend of earnings.
Because non-GAAP financial measures are not
standardized, it may not be possible to compare these financial
measures with other companies' non-GAAP financial measures having
the same or similar names. These adjusted financial measures should
not be considered in isolation or as a substitute for reported
sales growth, gross profit, selling, general and administrative
expenses, operating income, effective income tax rate, net earnings
and net earnings per diluted share, the most directly comparable
GAAP financial measures. These non-GAAP financial measures are an
additional way of viewing aspects of our operations that, when
viewed with our GAAP results and the reconciliations to
corresponding GAAP financial measures below, provide a more
complete understanding of our business. We strongly encourage
investors and shareholders to review our financial statements and
publicly-filed reports in their entirety and not to rely on any
single financial measure.
The following reconciles the non-GAAP financial
measures discussed above with the most directly comparable GAAP
financial measures. The weighted-average diluted shares outstanding
used in the calculation of non-GAAP earnings per share are the same
as those used in the calculation of reported earnings per share for
the respective period.
STRYKER CORPORATION |
For the Three Months March 31 |
(Unaudited - Millions of Dollars, Except Per
Share Amounts) |
Reconciliation of Non-GAAP Financial Measures
to the Most Directly Comparable GAAP Financial
Measures |
Three Months 2019 |
Gross Profit |
Selling, General & Administrative
Expenses |
Amortization of Intangible Assets |
Operating Income |
Net Earnings |
Effective Tax Rate |
Diluted EPS |
Reported |
$ |
2,283 |
|
$ |
1,403 |
|
$ |
114 |
|
$ |
528 |
|
$ |
412 |
|
14.2 |
% |
$ |
1.09 |
|
Reported percent net
sales |
64.9 |
% |
39.9 |
% |
3.2 |
% |
15.0 |
% |
11.7 |
% |
|
|
Acquisition and
integration-related charges (a) |
|
|
|
|
|
|
|
Inventory
stepped-up to fair value |
24 |
|
— |
|
— |
|
24 |
|
19 |
|
0.3 |
|
0.05 |
|
Other
acquisition and integration-related |
— |
|
(114 |
) |
— |
|
114 |
|
88 |
|
2.0 |
|
0.23 |
|
Amortization of
purchased intangible assets |
— |
|
— |
|
(114 |
) |
114 |
|
91 |
|
1.3 |
|
0.24 |
|
Restructuring-related
and other charges (b) |
5 |
|
(52 |
) |
— |
|
56 |
|
50 |
|
(0.3 |
) |
0.13 |
|
Medical device
regulations (c) |
— |
|
— |
|
— |
|
7 |
|
6 |
|
0.1 |
|
0.01 |
|
Recall-related matters
(d) |
— |
|
— |
|
— |
|
13 |
|
10 |
|
0.3 |
|
0.03 |
|
Regulatory and legal
matters (e) |
— |
|
(25 |
) |
— |
|
25 |
|
19 |
|
0.4 |
|
0.05 |
|
Tax matters (f) |
— |
|
— |
|
— |
|
— |
|
19 |
|
(3.9 |
) |
0.05 |
|
Adjusted |
$ |
2,312 |
|
$ |
1,212 |
|
$ |
— |
|
$ |
881 |
|
$ |
714 |
|
14.4 |
% |
$ |
1.88 |
|
Adjusted percent net
sales |
65.8 |
% |
34.5 |
% |
— |
% |
25.1 |
% |
20.3 |
% |
|
|
Three Months 2018 |
Gross Profit |
Selling, General & Administrative
Expenses |
Amortization of Intangible Assets |
Operating Income |
Net Earnings |
Effective Tax Rate |
Diluted EPS |
Reported |
$ |
2,137 |
|
$ |
1,236 |
|
$ |
102 |
|
$ |
591 |
|
$ |
443 |
|
18.3 |
% |
$ |
1.16 |
|
Reported percent net
sales |
65.9 |
% |
38.1 |
% |
3.1 |
% |
18.2 |
% |
13.7 |
% |
|
|
Acquisition and
integration-related charges (a) |
|
|
|
|
|
|
|
Inventory
stepped-up to fair value |
6 |
|
— |
|
— |
|
6 |
|
4 |
|
0.2 |
|
0.01 |
|
Other
acquisition and integration-related |
— |
|
(11 |
) |
— |
|
11 |
|
9 |
|
— |
|
0.02 |
|
Amortization of
purchased intangible assets |
— |
|
— |
|
(102 |
) |
102 |
|
83 |
|
0.4 |
|
0.22 |
|
Restructuring-related
and other charges (b) |
5 |
|
(58 |
) |
— |
|
63 |
|
50 |
|
0.5 |
|
0.13 |
|
Medical device
regulations (c) |
1 |
|
— |
|
— |
|
1 |
|
1 |
|
— |
|
— |
|
Recall-related matters
(d) |
— |
|
— |
|
— |
|
4 |
|
3 |
|
0.1 |
|
0.01 |
|
Regulatory and legal
matters (e) |
— |
|
(32 |
) |
— |
|
32 |
|
24 |
|
0.5 |
|
0.07 |
|
Tax matters (f) |
— |
|
— |
|
— |
|
— |
|
21 |
|
(3.9 |
) |
0.06 |
|
Adjusted |
$ |
2,149 |
|
$ |
1,135 |
|
$ |
— |
|
$ |
810 |
|
$ |
638 |
|
16.1 |
% |
$ |
1.68 |
|
Adjusted percent net
sales |
66.3 |
% |
35.0 |
% |
— |
% |
25.0 |
% |
19.7 |
% |
|
|
(a) |
Charges represent certain
acquisition and integration-related costs associated with
acquisitions. |
(b) |
Charges
represent the costs associated with certain restructuring-related
activities associated with workforce reductions and other
restructuring-related activities. |
(c) |
Charges
represent the costs specific to updating our quality system,
product labeling, asset write-offs and product remanufacturing to
comply with the medical device reporting regulations and other
requirements of the new medical device regulations in the European
Union and China. |
(d) |
Charges represent changes
in our best estimate of the minimum end of the range of probable
loss to resolve certain recall-related matters. |
(e) |
Our best
estimate of the minimum of the range of probable loss to resolve
certain regulatory or other legal matters and the amount of
favorable awards from settlements. |
(f) |
Benefits
and charges represent the accounting impact of certain significant
and discrete tax items, including adjustments related to the Tax
Cuts and Jobs Act of 2017, and the transfer of certain intellectual
properties between tax jurisdictions. |
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