Stryker (NYSE:SYK) reported operating results for the third quarter
of 2022:
Third Quarter
Results
- Reported net sales
increased 7.7%
to $4.5 billion
- Organic net sales
increased 9.9%
- Reported operating income
margin of 18.0%
- Adjusted operating income
margin(1) contracted
310 bps to
22.3%
- Reported EPS
increased 87.7%
to $2.14
- Adjusted
EPS(1) decreased 3.6% to
$2.12
|
Third Quarter Net Sales Growth Overview |
|
Reported |
|
Foreign Currency Exchange |
|
Constant Currency |
|
Acquisitions / Divestitures |
|
Organic |
MedSurg and
Neurotechnology |
10.2 |
% |
|
(3.3)
% |
|
13.5 |
% |
|
2.7 |
% |
|
10.8 |
% |
Orthopaedics and Spine |
4.4 |
|
|
(4.3) |
|
|
8.7 |
|
|
— |
|
|
8.7 |
|
Total |
7.7 |
% |
|
(3.7) % |
|
11.4 |
% |
|
1.5 |
% |
|
9.9 |
% |
"We delivered strong organic sales growth in the
quarter, despite product shortages and disruptions to full return
of surgeries," said Kevin A. Lobo, Chair and CEO. "Worsening
foreign currency and ongoing inflation, including premiums on spot
buys for key components, pressured our adjusted earnings and will
impact our full year results. We are taking additional actions to
address these persistent issues."
Sales Analysis
Consolidated net sales of $4.5 billion increased
7.7% in the quarter and 11.4% in constant currency. Organic net
sales increased 9.9% in the quarter including 10.6% from increased
unit volume partially offset by 0.7% from lower prices.
MedSurg and Neurotechnology net sales of $2.6
billion increased 10.2% in the quarter and 13.5% in constant
currency. Organic net sales increased 10.8% in the quarter
including 9.8% from increased unit volume and 1.0% from higher
prices.
Orthopaedics and Spine net sales of $1.9 billion
increased 4.4% in the quarter and 8.7% in constant currency.
Organic net sales increased 8.7% in the quarter including 11.6%
from increased unit volume partially offset by 2.9% from lower
prices.
Earnings Analysis
Reported net earnings of $816 million increased
86.3% in the quarter. Reported net earnings per diluted share of
$2.14 increased 87.7% in the quarter. Reported gross profit margin
and reported operating income margin were 62.1% and 18.0% in the
quarter. Reported net earnings include certain items, such as
charges for acquisition and integration-related activities, the
amortization of purchased intangible assets, asset write-offs and
impairments and restructuring-related and other charges, costs to
comply with certain medical device regulations, recall-related
matters, regulatory and legal matters and tax matters. Excluding
the aforementioned items, adjusted gross profit margin(1) was 62.6%
in the quarter, and adjusted operating income margin(1) was 22.3%
in the quarter. Adjusted net earnings(1) of $810 million decreased
3.8% in the quarter. Adjusted net earnings per diluted share(1) of
$2.12 decreased 3.6% in the quarter.
2022 Outlook
Considering our third quarter results, the
strong order book for capital equipment and the sales momentum in
our implant and capital businesses, we now expect full year 2022
organic net sales growth(2) to be in the range of 8.5% to 9.0%. If
foreign currency exchange rates hold near current levels, we now
expect net sales in the full year to be adversely impacted by
approximately 4% and adjusted net earnings per diluted share(2) to
be adversely impacted by approximately $0.35 to $0.40 in the full
year. Based on our performance in the third quarter including
consideration of continued inflationary pressures, together with
our strong sales and additional cost reduction actions, and most
significantly, the anticipated future impact of foreign currency,
we now expect adjusted net earnings per diluted share(2) in the
range of $9.15 to $9.25 per share.
(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 sales growth to expected organic
net sales growth as we are unable to predict with reasonable
certainty and without unreasonable effort the impact and timing of
acquisitions and divestitures and the impact of foreign currency
exchange rates. 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
Monday, October 31, 2022
As previously announced, Stryker will host a
conference call on Monday, October 31, 2022
at 4:30 p.m., Eastern Time, to discuss the Company's operating
results for the quarter ended September 30, 2022 and provide
an operational update.
Please register for this conference call at:
https://www.netroadshow.com/events/login?show=ef1f360c&confId=40138.
After registering, a confirmation will be sent via email, including
dial-in details and unique conference call access codes required
for call entry. Registration is open throughout the live call. To
ensure you are connected prior to the beginning of the call, the
Company suggests registering a minimum of 15 minutes before the
start of the call.
A simultaneous webcast of the call will be
accessible via the Investor Relations page of the Company's website
at www.stryker.com. For those not planning to ask a question of
management, the Company recommends listening via the webcast.
Please allow 15 minutes to register, download and install any
necessary software.
Following the conference call, a replay will be
available at (866) 813-9403 (Toll Free) or (929) 458-6194
(International). The replay passcode is 382708. An archive of the
webcast will also be available on the Company's website two hours
after the live call ends.
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 law 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: the
impact on our operations and financial results of the COVID-19
pandemic and any related policies and actions by governments or
other third parties; unexpected liabilities, costs, charges or
expenses in connection with the acquisition of Vocera
Communications, Inc. (Vocera); the effects of the Vocera
transaction on the relationships of the parties with employees,
customers, other business partners or governmental entities;
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 United States Food and Drug Administration approval of new
products, including Vocera products; inflationary pressures; supply
chain 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 and
realize the anticipated benefits of acquisitions in full or at all
or within the expected timeframes, including the acquisition of
Vocera; our ability to realize anticipated cost savings; and
potential negative impacts resulting from environmental, social and
governance (ESG) and sustainability related matters. Additional
information concerning these and other factors is contained in our
filings with the United States Securities and Exchange Commission,
including our Annual Report on Form 10-K and Quarterly Reports on
Form 10-Q. We disclaim any intention or obligation to publicly
update or revise any forward-looking statement to reflect any
change in our expectations or in events, conditions or
circumstances on which those expectations may be based, or that
affect the likelihood that actual results will differ from those
contained in the forward-looking statements.
Stryker is one of the world's leading medical
technology companies and, together with its customers, is driven to
make healthcare better. The company offers innovative products and
services in Medical and Surgical, Neurotechnology, Orthopaedics and
Spine that help improve patient and hospital outcomes. Alongside
its customers around the world, Stryker impacts more than 100
million patients annually. More information is available at
www.stryker.com.
For investor inquiries please
contact:
Jason Beach, Vice President, Investor Relations
at 269-385-2600 or jason.beach@stryker.com
For media inquiries please
contact:
Yin Becker, Vice President, Chief Corporate
Affairs Officer at 269-385-2600 or yin.becker@stryker.com
STRYKER CORPORATION |
For the Three and Nine Months September 30 |
(Unaudited - Millions of Dollars, Except Per Share
Amounts) |
CONSOLIDATED STATEMENTS OF EARNINGS |
|
|
|
|
|
|
|
|
|
Three Months |
|
Nine Months |
|
|
2022 |
|
|
|
2021 |
|
|
% Change |
|
|
2022 |
|
|
|
2021 |
|
|
% Change |
Net
sales |
$ |
4,479 |
|
|
$ |
4,160 |
|
|
7.7 |
% |
|
$ |
13,247 |
|
|
$ |
12,407 |
|
|
6.8 |
% |
Cost of sales |
|
1,697 |
|
|
|
1,518 |
|
|
11.8 |
|
|
|
4,905 |
|
|
|
4,484 |
|
|
9.4 |
|
Gross
profit |
$ |
2,782 |
|
|
$ |
2,642 |
|
|
5.3 |
% |
|
$ |
8,342 |
|
|
$ |
7,923 |
|
|
5.3 |
% |
% of sales |
|
62.1 |
% |
|
|
63.5 |
% |
|
|
|
|
63.0 |
% |
|
|
63.9 |
% |
|
|
Research, development and engineering expenses |
|
364 |
|
|
|
306 |
|
|
19.0 |
|
|
|
1,128 |
|
|
|
904 |
|
|
24.8 |
|
Selling, general and administrative expenses |
|
1,455 |
|
|
|
1,602 |
|
|
(9.2) |
|
|
|
4,704 |
|
|
|
4,682 |
|
|
0.5 |
|
Recall charges |
|
(4 ) |
|
|
|
16 |
|
|
nm |
|
|
14 |
|
|
|
98 |
|
|
nm |
Amortization of intangible assets |
|
159 |
|
|
|
144 |
|
|
10.4 |
|
|
|
469 |
|
|
|
474 |
|
|
(1.1) |
|
Total operating expenses |
$ |
1,974 |
|
|
$ |
2,068 |
|
|
(4.5) % |
|
$ |
6,315 |
|
|
$ |
6,158 |
|
|
2.5 |
% |
Operating
income |
$ |
808 |
|
|
$ |
574 |
|
|
40.8 |
% |
|
$ |
2,027 |
|
|
$ |
1,765 |
|
|
14.8 |
% |
% of sales |
|
18.0 |
% |
|
|
13.8 |
% |
|
|
|
|
15.3 |
% |
|
|
14.2 |
% |
|
|
Other income (expense), net |
|
8 |
|
|
|
(79) |
|
|
nm |
|
|
(105) |
|
|
|
(241) |
|
|
(56.4) |
|
Earnings before income
taxes |
$ |
816 |
|
|
$ |
495 |
|
|
64.8 |
% |
|
$ |
1,922 |
|
|
$ |
1,524 |
|
|
26.1 |
% |
Income taxes |
|
— |
|
|
|
57 |
|
|
(100.0) |
|
|
|
127 |
|
|
|
192 |
|
|
(33.9) |
|
Net
earnings |
$ |
816 |
|
|
$ |
438 |
|
|
86.3 |
% |
|
$ |
1,795 |
|
|
$ |
1,332 |
|
|
34.8 |
% |
Net earnings per share
of common stock: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
2.16 |
|
|
$ |
1.17 |
|
|
84.6 |
% |
|
$ |
4.75 |
|
|
$ |
3.54 |
|
|
34.2 |
% |
Diluted |
$ |
2.14 |
|
|
$ |
1.14 |
|
|
87.7 |
% |
|
$ |
4.70 |
|
|
$ |
3.48 |
|
|
35.1 |
% |
Weighted-average
shares outstanding (in millions): |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
378.4 |
|
|
|
377.1 |
|
|
|
|
|
378.1 |
|
|
|
376.8 |
|
|
|
Diluted |
|
381.8 |
|
|
|
382.7 |
|
|
|
|
|
382.2 |
|
|
|
382.3 |
|
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS |
|
September 30 |
|
December 31 |
|
|
2022 |
|
|
2021 |
Assets |
|
|
|
Cash and cash equivalents |
$ |
1,420 |
|
$ |
2,944 |
Marketable securities |
|
77 |
|
|
75 |
Accounts receivable, net |
|
3,103 |
|
|
3,022 |
Inventories |
|
3,883 |
|
|
3,314 |
Prepaid expenses and other current assets |
|
835 |
|
|
662 |
Total current assets |
$ |
9,318 |
|
$ |
10,017 |
Property, plant and equipment, net |
|
2,798 |
|
|
2,833 |
Goodwill and other intangibles, net |
|
20,046 |
|
|
17,758 |
Noncurrent deferred income tax assets |
|
1,390 |
|
|
1,760 |
Other noncurrent assets |
|
2,431 |
|
|
2,263 |
Total
assets |
$ |
35,983 |
|
$ |
34,631 |
Liabilities and
shareholders' equity |
|
|
|
Current liabilities |
$ |
4,571 |
|
$ |
4,549 |
Long-term debt, excluding current maturities |
|
12,751 |
|
|
12,472 |
Income taxes |
|
621 |
|
|
913 |
Other noncurrent liabilities |
|
1,577 |
|
|
1,820 |
Shareholders' equity |
|
16,463 |
|
|
14,877 |
Total liabilities and
shareholders' equity |
$ |
35,983 |
|
$ |
34,631 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
|
Nine Months |
|
|
2022 |
|
|
|
2021 |
|
Operating
activities |
|
|
|
Net earnings |
$ |
1,795 |
|
|
$ |
1,332 |
|
Depreciation |
|
276 |
|
|
|
278 |
|
Amortization of intangible assets |
|
469 |
|
|
|
474 |
|
Changes in operating assets, liabilities, income taxes payable and
other, net |
|
(919) |
|
|
|
179 |
|
Net cash provided by
operating activities |
$ |
1,621 |
|
|
$ |
2,263 |
|
Investing
activities |
|
|
|
Acquisitions, net of cash acquired |
$ |
(2,563) |
|
|
$ |
(226) |
|
Purchases of property, plant and equipment |
|
(400) |
|
|
|
(319) |
|
Other investing, net |
|
201 |
|
|
|
— |
|
Net cash used in
investing activities |
$ |
(2,762) |
|
|
$ |
(545) |
|
Financing
activities |
|
|
|
Borrowings (payments) of debt, net |
$ |
622 |
|
|
$ |
(1,139) |
|
Payments of dividends |
|
(788) |
|
|
|
(713) |
|
Other financing, net |
|
(137) |
|
|
|
(225) |
|
Net cash provided by
(used in) financing activities |
$ |
(303) |
|
|
$ |
(2,077) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
(80) |
|
|
|
(21) |
|
Change in cash and
cash equivalents |
$ |
(1,524) |
|
|
$ |
(380) |
|
nm - not meaningful
STRYKER CORPORATION |
For the Three and Nine Months September 30 |
(Unaudited - Millions of Dollars) |
SALES GROWTH ANALYSIS |
|
Three Months |
|
Nine Months |
|
|
|
|
Percentage Change |
|
|
|
|
Percentage Change |
|
|
2022 |
|
2021 |
|
As Reported |
ConstantCurrency |
|
|
2022 |
|
2021 |
|
As Reported |
ConstantCurrency |
Geographic: |
|
|
|
|
|
|
|
|
|
|
|
United States |
$ |
3,360 |
$ |
3,019 |
|
11.3 |
% |
11.3 |
% |
|
$ |
9,776 |
$ |
8,903 |
|
9.8 |
% |
9.8 |
% |
International |
|
1,119 |
|
1,141 |
|
(1.9) |
|
11.7 |
|
|
|
3,471 |
|
3,504 |
|
(0.9) |
|
9.1 |
|
Total |
$ |
4,479 |
$ |
4,160 |
|
7.7 |
% |
11.4 |
% |
|
$ |
13,247 |
$ |
12,407 |
|
6.8 |
% |
9.6 |
% |
Segment: |
|
|
|
|
|
|
|
|
|
|
|
MedSurg and Neurotechnology |
$ |
2,588 |
$ |
2,349 |
|
10.2 |
% |
13.5 |
% |
|
$ |
7,560 |
$ |
6,899 |
|
9.6 |
% |
12.1 |
% |
Orthopaedics and Spine |
|
1,891 |
|
1,811 |
|
4.4 |
|
8.7 |
|
|
|
5,687 |
|
5,508 |
|
3.2 |
|
6.5 |
|
Total |
$ |
4,479 |
$ |
4,160 |
|
7.7 |
% |
11.4 |
% |
|
$ |
13,247 |
$ |
12,407 |
|
6.8 |
% |
9.6 |
% |
SUPPLEMENTAL SALES GROWTH ANALYSIS |
|
Three Months |
|
|
|
|
|
|
United States |
|
International |
|
|
|
Percentage Change |
|
|
2022 |
|
2021 |
|
As Reported |
Constant Currency |
|
As Reported |
|
As Reported |
Constant Currency |
MedSurg
and Neurotechnology: |
|
|
|
|
|
|
|
|
|
|
Instruments |
$ |
535 |
$ |
525 |
|
1.8 |
% |
4.8 |
% |
|
2.3 |
% |
|
— |
% |
14.4 |
% |
Endoscopy |
|
590 |
|
525 |
|
12.4 |
|
14.9 |
|
|
14.8 |
|
|
3.1 |
|
15.6 |
|
Medical |
|
765 |
|
636 |
|
20.1 |
|
22.9 |
|
|
25.8 |
|
|
— |
|
12.7 |
|
Neurovascular |
|
294 |
|
295 |
|
(0.3) |
|
7.6 |
|
|
(2.0) |
|
|
0.7 |
|
13.6 |
|
Neuro Cranial |
|
332 |
|
299 |
|
11.3 |
|
13.9 |
|
|
12.7 |
|
|
5.0 |
|
19.6 |
|
Other |
|
72 |
|
69 |
|
5.9 |
|
6.0 |
|
|
5.8 |
|
|
12.9 |
|
16.4 |
|
|
$ |
2,588 |
$ |
2,349 |
|
10.2 |
% |
13.5 |
% |
|
13.2 |
% |
|
1.3 |
% |
14.4 |
% |
Orthopaedics
and Spine: |
|
|
|
|
|
|
|
|
|
|
Knees |
$ |
481 |
$ |
439 |
|
9.6 |
% |
13.4 |
% |
|
13.7 |
% |
|
(1.7) % |
12.3 |
% |
Hips |
|
347 |
|
328 |
|
5.6 |
|
11.3 |
|
|
12.4 |
|
|
(5.0) |
|
9.6 |
|
Trauma and Extremities |
|
672 |
|
639 |
|
5.1 |
|
9.5 |
|
|
10.4 |
|
|
(7.1) |
|
7.3 |
|
Spine |
|
280 |
|
282 |
|
(1.0) |
|
2.6 |
|
|
2.0 |
|
|
(8.7) |
|
3.9 |
|
Other |
|
111 |
|
123 |
|
(9.2) |
|
(5.6) |
|
|
(11.2) |
|
|
(1.7) |
|
15.5 |
|
|
$ |
1,891 |
$ |
1,811 |
|
4.4 |
% |
8.7 |
% |
|
8.6 |
% |
|
(5.4)
% |
8.8 |
% |
Total |
$ |
4,479 |
$ |
4,160 |
|
7.7 |
% |
11.4 |
% |
|
11.3 |
% |
|
(1.9)
% |
11.7 |
% |
|
|
Nine Months |
|
|
|
|
|
|
|
United States |
|
International |
|
|
|
|
Percentage Change |
|
|
2022 |
|
2021 |
|
As Reported |
Constant Currency |
|
As Reported |
|
As Reported |
Constant Currency |
MedSurg
and Neurotechnology: |
|
|
|
|
|
|
|
|
|
|
Instruments |
$ |
1,626 |
$ |
1,511 |
|
7.6 |
% |
9.9 |
% |
|
10.1 |
% |
|
(1.0)% |
9.4% |
|
Endoscopy |
|
1,728 |
|
1,512 |
|
14.3 |
|
16.6 |
|
|
16.3 |
|
|
7.2 |
|
17.8 |
|
Medical |
|
2,095 |
|
1,898 |
|
10.4 |
|
12.4 |
|
|
15.7 |
|
|
(7.3) |
|
1.2 |
|
Neurovascular |
|
901 |
|
885 |
|
1.7 |
|
7.1 |
|
|
(1.7) |
|
|
3.8 |
|
12.7 |
|
Neuro Cranial |
|
992 |
|
890 |
|
11.5 |
|
13.4 |
|
|
13.2 |
|
|
4.2 |
|
14.3 |
|
Other |
|
218 |
|
203 |
|
7.8 |
|
7.8 |
|
|
7.3 |
|
|
42.1 |
|
45.2 |
|
|
$ |
7,560 |
$ |
6,899 |
|
9.6 |
% |
12.1 |
% |
|
12.7 |
% |
|
1.0 |
% |
10.4 |
% |
Orthopaedics
and Spine: |
|
|
|
|
|
|
|
|
|
|
Knees |
$ |
1,445 |
$ |
1,325 |
|
9.1 |
% |
12.1 |
% |
|
11.8 |
% |
|
1.6 |
% |
12.8 |
% |
Hips |
|
1,038 |
|
990 |
|
4.8 |
|
9.2 |
|
|
8.3 |
|
|
(0.7) |
|
10.5 |
|
Trauma and Extremities |
|
2,033 |
|
1,953 |
|
4.1 |
|
7.2 |
|
|
7.9 |
|
|
(4.8) |
|
5.6 |
|
Spine |
|
849 |
|
867 |
|
(2.1) |
|
0.6 |
|
|
0.6 |
|
|
(8.5) |
|
0.7 |
|
Other |
|
322 |
|
373 |
|
(13.4) |
|
(10.6) |
|
|
(16.0) |
|
|
(4.3) |
|
9.0 |
|
|
$ |
5,687 |
$ |
5,508 |
|
3.2 |
% |
6.5 |
% |
|
6.0 |
% |
|
(3.0) % |
7.7 |
% |
Total |
$ |
13,247 |
$ |
12,407 |
|
6.8 |
% |
9.6 |
% |
|
9.8 |
% |
|
(0.9) % |
9.1 |
% |
Note: The three and nine months
2022 had the same number of selling days as 2021.
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 research, development and engineering expenses;
adjusted operating income; adjusted other income (expense), net;
adjusted effective income tax rate; adjusted net earnings; adjusted
net earnings per diluted share (Diluted EPS); free cash flow; and
free cash flow conversion. We believe 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,
acquisitions and divestitures, which affect the comparability and
trend of sales. Percentage organic sales growth is calculated by
translating current year and prior year results at the same foreign
currency exchange rate excluding the impact of acquisitions and
divestitures. 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. To
measure free cash flow, we adjust cash provided by operating
activities by the amount of purchases of property, plant and
equipment and proceeds from long-lived asset disposals and remove
the impact of certain legal settlements and recall payments. To
measure free cash flow conversion we divide free cash flow by
adjusted net 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, research, development and engineering expenses, operating
income, other income (expense), net, 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 net earnings per diluted share
are the same as those used in the calculation of reported net
earnings per diluted share for the respective period.
STRYKER CORPORATION |
For the Three and Nine Months September 30 |
(Unaudited - Millions of Dollars, Except Per Share
Amounts) |
Reconciliation of Non-GAAP Financial Measures to the Most
Directly Comparable GAAP Financial Measures |
Three Months 2022 |
Gross Profit |
Selling, General & Administrative
Expenses |
Research, Development & Engineering
Expenses |
Operating Income |
Other Income (Expense), Net |
Net Earnings |
EffectiveTax Rate |
Diluted EPS |
Reported |
$ |
2,782 |
|
$ |
1,455 |
|
$ |
364 |
|
$ |
808 |
|
$ |
8 |
|
$ |
816 |
|
— |
% |
$ |
2.14 |
|
Reported percent net
sales |
|
62.1 |
% |
|
32.5 |
% |
|
8.1 |
% |
|
18.0 |
% |
|
0.2 |
% |
|
18.2 |
% |
|
|
Acquisition and
integration-related costs (a) |
|
|
|
|
|
|
|
|
Inventory stepped-up to fair value |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
Other acquisition and integration-related |
|
— |
|
|
78 |
|
|
— |
|
|
(78) |
|
|
— |
|
|
(82) |
|
2.0 |
|
|
(0.21) |
|
Amortization of purchased
intangible assets |
|
— |
|
|
— |
|
|
— |
|
|
159 |
|
|
— |
|
|
132 |
|
0.5 |
|
|
0.34 |
|
Restructuring-related and
other charges (b) |
|
19 |
|
|
(31) |
|
|
(8) |
|
|
58 |
|
|
— |
|
|
50 |
|
— |
|
|
0.13 |
|
Medical device regulations
(c) |
|
1 |
|
|
2 |
|
|
(39) |
|
|
38 |
|
|
— |
|
|
32 |
|
0.1 |
|
|
0.08 |
|
Recall-related matters
(d) |
|
— |
|
|
— |
|
|
— |
|
|
(4) |
|
|
— |
|
|
(4) |
|
— |
|
|
(0.01) |
|
Regulatory and legal matters
(e) |
|
— |
|
|
(20) |
|
|
— |
|
|
20 |
|
|
— |
|
|
15 |
|
0.2 |
|
|
0.04 |
|
Tax matters (f) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(62) |
|
|
(149) |
|
11.7 |
|
|
(0.39) |
|
Adjusted |
$ |
2,802 |
|
$ |
1,484 |
|
$ |
317 |
|
$ |
1,001 |
|
$ |
(54) |
|
$ |
810 |
|
14.5 |
% |
$ |
2.12 |
|
Adjusted percent net
sales |
|
62.6 |
% |
|
33.1 |
% |
|
7.1 |
% |
|
22.3 |
% |
(1.2)
% |
|
18.1 |
% |
|
|
Three Months 2021 |
Gross Profit |
Selling, General & Administrative
Expenses |
Research, Development & Engineering
Expenses |
Operating Income |
Other Income (Expense), Net |
Net Earnings |
EffectiveTax Rate |
Diluted EPS |
Reported |
$ |
2,642 |
|
$ |
1,602 |
|
$ |
306 |
|
$ |
574 |
|
$ |
(79) |
|
$ |
438 |
|
11.5 |
% |
$ |
1.14 |
|
Reported percent net
sales |
|
63.5 |
% |
|
38.5 |
% |
|
7.4 |
% |
|
13.8 |
% |
(1.9) % |
|
10.5 |
% |
|
|
Acquisition and
integration-related costs (a) |
|
|
|
|
|
|
|
|
Inventory stepped-up to fair value |
|
94 |
|
|
— |
|
|
— |
|
|
94 |
|
|
— |
|
|
73 |
|
1.9 |
|
|
0.19 |
|
Other acquisition and integration-related |
|
— |
|
|
(32)
|
|
|
— |
|
|
32 |
|
|
— |
|
|
24 |
|
0.8 |
|
|
0.06 |
|
Amortization of purchased
intangible assets |
|
— |
|
|
— |
|
|
— |
|
|
144 |
|
|
— |
|
|
114 |
|
2.0 |
|
|
0.30 |
|
Restructuring-related and
other charges (b) |
|
20 |
|
|
(158) |
|
|
— |
|
|
178 |
|
|
— |
|
|
165 |
|
(2.6) |
|
|
0.44 |
|
Medical device regulations
(c) |
|
1 |
|
|
— |
|
|
(26) |
|
|
27 |
|
|
— |
|
|
23 |
|
(0.1) |
|
|
0.06 |
|
Recall-related matters
(d) |
|
— |
|
|
— |
|
|
— |
|
|
16 |
|
|
— |
|
|
12 |
|
0.3 |
|
|
0.03 |
|
Regulatory and legal matters
(e) |
|
— |
|
|
7 |
|
|
— |
|
|
(7) |
|
|
— |
|
|
(7) |
|
0.2 |
|
|
(0.02) |
|
Tax matters (f) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
Adjusted |
$ |
2,757 |
|
$ |
1,419 |
|
$ |
280 |
|
$ |
1,058 |
|
$ |
(79) |
|
$ |
842 |
|
14.0 |
% |
$ |
2.20 |
|
Adjusted percent net
sales |
|
66.3 |
% |
|
34.1 |
% |
|
6.7 |
% |
|
25.4 |
% |
(1.9) % |
|
20.2 |
% |
|
|
Nine Months 2022 |
Gross Profit |
Selling, General & Administrative
Expenses |
Research, Development & Engineering
Expenses |
Operating Income |
Other Income (Expense), Net |
Net Earnings |
EffectiveTax Rate |
Diluted EPS |
Reported |
$ |
8,342 |
|
$ |
4,704 |
|
$ |
1,128 |
|
$ |
2,027 |
|
$ |
(105) |
|
$ |
1,795 |
|
6.6 |
% |
$ |
4.70 |
|
Reported percent net
sales |
|
63.0 |
% |
|
35.5 |
% |
|
8.5 |
% |
|
15.3 |
% |
(0.8) % |
|
13.6 |
% |
|
|
Acquisition and
integration-related costs (a) |
|
|
|
|
|
|
|
|
Inventory stepped-up to fair value |
|
12 |
|
|
— |
|
|
— |
|
|
12 |
|
|
— |
|
|
9 |
|
— |
|
|
0.02 |
|
Other acquisition and integration-related |
|
— |
|
|
(96) |
|
|
— |
|
|
96 |
|
|
— |
|
|
46 |
|
1.9 |
|
|
0.12 |
|
Amortization of purchased
intangible assets |
|
— |
|
|
— |
|
|
— |
|
|
469 |
|
|
— |
|
|
371 |
|
1.7 |
|
|
0.97 |
|
Restructuring-related and
other charges (b) |
|
29 |
|
|
(113) |
|
|
(87) |
|
|
229 |
|
|
— |
|
|
190 |
|
0.4 |
|
|
0.50 |
|
Medical device regulations
(c) |
|
3 |
|
|
— |
|
|
(95) |
|
|
98 |
|
|
— |
|
|
82 |
|
0.1 |
|
|
0.21 |
|
Recall-related matters
(d) |
|
— |
|
|
— |
|
|
— |
|
|
14 |
|
|
— |
|
|
10 |
|
0.1 |
|
|
0.03 |
|
Regulatory and legal matters
(e) |
|
— |
|
|
(53) |
|
|
— |
|
|
53 |
|
|
— |
|
|
39 |
|
0.3 |
|
|
0.10 |
|
Tax matters (f) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(74) |
|
|
(120) |
|
3.0 |
|
|
(0.31) |
|
Adjusted |
$ |
8,386 |
|
$ |
4,442 |
|
$ |
946 |
|
$ |
2,998 |
|
$ |
(179) |
|
$ |
2,422 |
|
14.1 |
% |
$ |
6.34 |
|
Adjusted percent net
sales |
|
63.3 |
% |
|
33.5 |
% |
|
7.1 |
% |
|
22.6 |
% |
(1.4) % |
|
18.3 |
% |
|
|
Nine Months 2021 |
Gross Profit |
Selling, General & Administrative
Expenses |
Research, Development & Engineering
Expenses |
Operating Income |
Other Income (Expense), Net |
Net Earnings |
EffectiveTax Rate |
Diluted EPS |
Reported |
$ |
7,923 |
|
$ |
4,682 |
|
$ |
904 |
|
$ |
1,765 |
|
$ |
(241) |
|
$ |
1,332 |
|
12.6 |
% |
$ |
3.48 |
|
Reported percent net
sales |
|
63.9 |
% |
|
37.7 |
% |
|
7.3 |
% |
|
14.2 |
% |
(1.9) % |
|
10.7 |
% |
|
|
Acquisition and
integration-related costs (a) |
|
|
|
|
|
|
|
|
Inventory stepped-up to fair value |
|
231 |
|
|
— |
|
|
— |
|
|
231 |
|
|
— |
|
|
176 |
|
1.4 |
|
|
0.46 |
|
Other acquisition and integration-related |
|
— |
|
|
(264) |
|
|
— |
|
|
264 |
|
|
— |
|
|
204 |
|
1.4 |
|
|
0.53 |
|
Amortization of purchased
intangible assets |
|
— |
|
|
— |
|
|
— |
|
|
474 |
|
|
— |
|
|
378 |
|
1.7 |
|
|
0.99 |
|
Restructuring-related and
other charges (b) |
|
20 |
|
|
(189) |
|
|
— |
|
|
209 |
|
|
11 |
|
|
198 |
|
(0.7) |
|
|
0.52 |
|
Medical device regulations
(c) |
|
2 |
|
|
— |
|
|
(70) |
|
|
72 |
|
|
— |
|
|
60 |
|
0.1 |
|
|
0.16 |
|
Recall-related matters
(d) |
|
— |
|
|
— |
|
|
— |
|
|
98 |
|
|
— |
|
|
85 |
|
(0.1) |
|
|
0.22 |
|
Regulatory and legal matters
(e) |
|
— |
|
|
16 |
|
|
— |
|
|
(16) |
|
|
(3) |
|
|
(19) |
|
0.2 |
|
|
(0.05 |
) |
Tax matters (f) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
26 |
|
(1.8) |
|
|
0.07 |
|
Adjusted |
$ |
8,176 |
|
$ |
4,245 |
|
$ |
834 |
|
$ |
3,097 |
|
$ |
(233) |
|
$ |
2,440 |
|
14.8 |
% |
$ |
6.38 |
|
Adjusted percent net
sales |
|
65.9 |
% |
|
34.2 |
% |
|
6.7 |
% |
|
25.0 |
% |
(1.9) % |
|
19.7 |
% |
|
|
(a) |
Charges represent certain acquisition and integration-related costs
associated with acquisitions including changes in the fair value of
contingent consideration. |
(b) |
Charges represent the costs associated with the termination of
sales relationships in certain countries, workforce reductions,
elimination of product lines, certain long-lived and intangible
asset write-offs and impairments and associated costs 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. |
(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 transfer of certain intellectual properties between tax
jurisdictions and certain significant tax audit settlements. |
Nine Months |
|
2022 |
|
|
|
2021 |
|
Cash provided by operating activities |
$ |
1,621 |
|
|
$ |
2,263 |
|
Net earnings |
|
1,795 |
|
|
|
1,332 |
|
Conversion |
|
90.3 |
% |
|
|
169.9 |
% |
|
|
|
|
Cash provided by
operating activities |
$ |
1,621 |
|
|
$ |
2,263 |
|
Purchases of property, plant
and equipment |
|
(400) |
|
|
|
(319) |
|
Proceeds from long-lived asset
disposals |
|
10 |
|
|
|
7 |
|
Recall payments |
|
26 |
|
|
|
180 |
|
Free cash
flow |
$ |
1,257 |
|
|
$ |
2,131 |
|
Adjusted net earnings |
|
2,422 |
|
|
|
2,440 |
|
Free cash flow
conversion |
|
51.9 |
% |
|
|
87.3 |
% |
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