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CST: 20/11/2019 10:43:05   

Stryker reports second quarter 2019 operating results

117 Days ago

Kalamazoo, Michigan, July 25, 2019 (GLOBE NEWSWIRE) -- Stryker (NYSE:SYK) reported operating results for the second quarter of 2019:

Second Quarter Highlights

  • Reported net sales increased 9.9% to $3.7 billion
  • Organic net sales increased 8.5%
  • Reported operating income margin of 16.8%
  • Adjusted operating income margin(1) expanded 20 bps to 25.9%
  • Reported EPS increased 5.9% to $1.26
  • Adjusted EPS(1) increased 12.5% to $1.98, exceeding the high end of guidance range
  Second Quarter Net Sales Growth Overview
  Reported   Foreign Currency Exchange   Constant Currency   Acquisitions   Organic
Orthopaedics 3.7 %   (1.9 )%   5.6 %   %   5.6 %
MedSurg 11.1     (1.4 )   12.5     1.0     11.5  
Neurotechnology and Spine 18.9     (1.9 )   20.8     13.4     7.4  
Total 9.9 %   (1.6 )%   11.5 %   3.0 %   8.5 %

"We are pleased with our second quarter performance, highlighted by 8.5% organic sales growth," said Kevin A. Lobo, Chairman and Chief Executive Officer. "The durability of our growth is evidenced by continued strength across our businesses and regions, as well as our revised full-year outlook."

Sales Analysis

Consolidated net sales of $3.7 billion increased 9.9% in the quarter and 11.5% in constant currency. Organic net sales increased 8.5% in the quarter including 9.3% from increased unit volume partially offset by 0.8% from lower prices.

Orthopaedics net sales of $1.3 billion increased 3.7% in the quarter and 5.6% in constant currency. Organic net sales increased 5.6% in the quarter including 6.9% from increased unit volume partially offset by 1.3% from lower prices.

MedSurg net sales of $1.6 billion increased 11.1% in the quarter and 12.5% in constant currency. Organic net sales increased 11.5% in the quarter including 11.6% from increased unit volume partially offset by 0.1% from lower prices.

Neurotechnology and Spine net sales of $0.8 billion increased 18.9% in the quarter and 20.8% in constant currency. Organic net sales increased 7.4% in the quarter including 8.7% from increased unit volume partially offset by 1.3% from lower prices.

Earnings Analysis

Reported net earnings of $480 million increased 6.2% in the quarter. Reported net earnings per diluted share of $1.26 increased 5.9% in the quarter. Reported gross profit margin and reported operating income margin were 65.2% and 16.8% in the quarter.  Adjusted gross profit margin(1) and adjusted operating income margin(1) were 65.8% and 25.9%, an improvement of 20 basis points in the quarter. Adjusted net earnings(1) of $752 million increased 12.2% in the quarter. Adjusted net earnings per diluted share(1) of $1.98 increased 12.5% in the quarter.

2019 Outlook

Based on our second quarter performance we now expect 2019 organic net sales growth to be in the range of 7.5% to 8.0% and expect adjusted net earnings per diluted share(2) to be in the range of $8.15 to $8.25. For the third quarter we expect adjusted net earnings per diluted share(2) to be in the range of $1.87 to $1.92. If foreign currency exchange rates hold near current levels, we expect net sales in the third quarter will be nominally impacted and full year will be negatively impacted by approximately 1.0%, and net earnings per diluted share will be nominally impacted in the third quarter and negatively impacted by approximately $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 Thursday, July 25, 2019

As previously announced, Stryker will host a conference call on Thursday, July 25, 2019 at 4:30 p.m., Eastern Time, to discuss the Company's operating results for the quarter ended June 30, 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 5290408 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 Thursday, July 25, 2019, until 11:59 p.m., Eastern Time, on Thursday, August 1, 2019. To hear this recording, you may dial (800) 585-8367 (domestic) or (416) 621-4642 (international) and enter conference ID number 5290408.

 

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 and Six Months June 30
(Unaudited - Millions of Dollars, Except Per Share Amounts)
CONSOLIDATED STATEMENTS OF EARNINGS
               
  Three Months   Six Months
  2019   2018   % Change   2019   2018   % Change
Net sales $ 3,650     $ 3,322     9.9 %   $ 7,166     $ 6,563     9.2 %
Cost of sales 1,270     1,132     12.2     2,503     2,236     11.9  
Gross profit $ 2,380     $ 2,190     8.7 %   $ 4,663     $ 4,327     7.8 %
% of sales 65.2 %   65.9 %       65.1 %   65.9 %    
Research, development and engineering expenses 246     216     13.9     471     420     12.1  
Selling, general and administrative expenses 1,282     1,190     7.7     2,685     2,426     10.7  
Recall charges 117     2     nm   130     6     nm
Amortization of intangible assets 122     110     10.9     236     212     11.3  
Total operating expenses $ 1,767     $ 1,518     16.4 %   $ 3,522     $ 3,064     14.9 %
Operating income $ 613     $ 672     (8.8 )%   $ 1,141     $ 1,263     (9.7 )%
% of sales 16.8 %   20.2 %       15.9 %   19.2 %    
Other income (expense), net (48 )   (49 )   (2.0 )   (96 )   (98 )   (2.0 )
Earnings before income taxes $ 565     $ 623     (9.3 )%   $ 1,045     $ 1,165     (10.3 )%
Income taxes 85     171     (50.3 )   153     270     (43.3 )
Net earnings $ 480     $ 452     6.2 %   $ 892     $ 895     (0.3 )%
Net earnings per share of common stock:                      
Basic $ 1.29     $ 1.21     6.6 %   $ 2.39     $ 2.39      
Diluted $ 1.26     $ 1.19     5.9 %   $ 2.35     $ 2.35      
Weighted-average shares outstanding (in millions):                      
Basic   373.9       373.9           373.6       373.9      
Diluted   379.5       380.1           379.4       380.4      

 

CONDENSED CONSOLIDATED BALANCE SHEETS
  June 30   December 31
  2019   2018
Assets      
Cash and cash equivalents $ 1,754     $ 3,616  
Marketable securities 85     83  
Accounts receivable, net 2,408     2,332  
Inventories 3,198     2,955  
Prepaid expenses and other current assets 740     747  
Total current assets $ 8,185     $ 9,733  
Property, plant and equipment, net 2,387     2,291  
Goodwill and other intangibles, net 12,946     12,726  
Noncurrent deferred income tax assets 1,613     1,678  
Other noncurrent assets 1,223     801  
Total assets $ 26,354     $ 27,229  
Liabilities and shareholders' equity      
Current liabilities $ 3,946     $ 4,807  
Long-term debt, excluding current maturities 7,974     8,486  
Income taxes 1,106     1,228  
Other noncurrent liabilities 1,385     978  
Shareholders' equity 11,943     11,730  
Total liabilities and shareholders' equity $ 26,354     $ 27,229  

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Six Months
  2019   2018
Operating activities      
Net earnings $ 892     $ 895  
Depreciation 153     150  
Amortization of intangible assets 236     212  
Changes in operating assets and liabilities and other, net (454 )   (311 )
Net cash provided by operating activities $ 827     $ 946  
Investing activities      
Acquisitions, net of cash acquired $ (260 )   $ (767 )
Change in marketable securities, net (3 )   (28 )
Purchases of property, plant and equipment (287 )   (278 )
Net cash used in investing activities $ (550 )   $ (1,073 )
Financing activities      
(Payments) borrowings of debt, net $ (1,335 )   $ (12 )
Dividends paid (390 )   (352 )
Repurchases of common stock (307 )   (300 )
Other financing, net (103 )   (108 )
Net cash (used in) provided by financing activities $ (2,135 )   $ (772 )
Effect of exchange rate changes on cash and cash equivalents (4 )   (2 )
Change in cash and cash equivalents $ (1,862 )   $ (901 )

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STRYKER CORPORATION
For the Three and Six Months June 30
(Unaudited - Millions of Dollars)

 

SALES GROWTH ANALYSIS
  Three Months   Six Months
    Percentage Change     Percentage Change
  2019 2018 As Reported   Constant
Currency
  2019 2018 As Reported   Constant
Currency
Geographic:                      
United States $ 2,695   $ 2,385   13.0 %   13.0 %   $ 5,274   $ 4,699   12.2 %   12.2 %
International 955   937   1.9     7.8     1,892   1,864   1.5     8.0  
Total $ 3,650   $ 3,322   9.9 %   11.5 %   $ 7,166   $ 6,563   9.2 %   11.1 %
Segment:                      
Orthopaedics $ 1,273   $ 1,228   3.7 %   5.6 %   $ 2,523   $ 2,444   3.2 %   5.3 %
MedSurg 1,617   1,455   11.1     12.5     3,161   2,882   9.7     11.3  
Neurotechnology and Spine 760   639   18.9     20.8     1,482   1,237   19.8     22.0  
Total $ 3,650   $ 3,322   9.9 %   11.5 %   $ 7,166   $ 6,563   9.2 %   11.1 %

 

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 $ 440   $ 422     4.2 %   5.8 %   6.6 %   (2.0 )% 3.8 %
Hips 343   336     1.9     4.0     5.4     (3.6 ) 1.8  
Trauma and Extremities 394   387     2.0     4.0     4.5     (2.1 ) 3.2  
Other 96   83     16.6     17.9     17.4     13.4   20.1  
  $ 1,273   $ 1,228     3.7 %   5.6 %   6.5 %   (2.0 )% 3.6 %
MedSurg:                      
Instruments $ 520   $ 438     18.8 %   20.3 %   22.4 %   6.4 % 12.8 %
Endoscopy 480   448     7.3     8.9     8.4     3.2   10.9  
Medical 542   505     7.1     8.5     11.9     (8.1 ) (2.5 )
Sustainability 75   64     16.4     16.4     16.0     75.9   82.6  
  $ 1,617   $ 1,455     11.1 %   12.5 %   14.2 %   % 6.4 %
Neurotechnology and Spine:                      
Neurotechnology $ 483   $ 437     10.3 %   12.2 %   11.2 %   8.7 % 14.1 %
Spine 277   202     37.5     39.3     43.8     21.5   27.7  
  $ 760   $ 639     18.9 %   20.8 %   22.3 %   12.1 % 17.7 %
Total $ 3,650   $ 3,322     9.9 %   11.5 %   13.0 %   1.9 % 7.8 %

 

SUPPLEMENTAL SALES GROWTH ANALYSIS
  Six Months
              United States   International
      Percentage Change
  2019 2018   As Reported   Constant Currency   As Reported   As Reported Constant Currency
Orthopaedics:                      
Knees $ 879   $ 841     4.5 %   6.4 %   6.6 %   (0.8 )% 5.9 %
Hips 679   667     1.7     4.1     4.7     (3.0 ) 3.1  
Trauma and Extremities 790   776     1.8     4.1     3.9     (1.7 ) 4.3  
Other 175   160     9.6     10.9     8.8     13.0   20.7  
  $ 2,523   $ 2,444     3.2 %   5.3 %   5.5 %   (1.3 )% 5.0 %
MedSurg:                      
Instruments $ 998   $ 850     17.5 %   19.2 %   21.6 %   3.9 % 10.9 %
Endoscopy 950   892     6.5     8.2     8.0     1.1   9.2  
Medical 1,073   1,016     5.6     7.2     10.6     (9.7 ) (3.6 )
Sustainability 140   124     12.8     12.8     12.3     95.0   103.3  
  $ 3,161   $ 2,882     9.7 %   11.3 %   13.1 %   (2.2 )% 4.8 %
Neurotechnology and Spine:                      
Neurotechnology $ 948   $ 847     11.9 %   14.1 %   13.5 %   9.1 % 15.1 %
Spine 534   390     36.9     39.0     42.4     22.5   29.7  
  $ 1,482   $ 1,237     19.8 %   22.0 %   23.5 %   12.5 % 18.9 %
Total $ 7,166   $ 6,563     9.2 %   11.1 %   12.2 %   1.5 % 8.0 %

 

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 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, research, development and engineering 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 and Six Months June 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 2019 Gross Profit Selling, General & Administrative Expenses Research, Development & Engineering Expenses Operating Income Net Earnings Effective
Tax Rate
Diluted EPS
Reported $ 2,380   $ 1,282   $ 246   $ 613   $ 480   15.0 % $ 1.26  
Reported percent net sales 65.2 % 35.1 % 6.7 % 16.8 % 13.2 %    
Acquisition and integration-related charges (a)              
Inventory stepped-up to fair value 14       14   10   0.3   0.03  
Other acquisition and integration-related   (39 )   39   30   0.6   0.08  
Amortization of purchased intangible assets       122   98   0.9   0.26  
Restructuring-related and other charges (b) 6   (36 )   42   32   0.4   0.08  
Medical device regulations (c) 1     (11 ) 12   9   0.2   0.03  
Recall-related matters (d)       117   106   (1.4 ) 0.28  
Regulatory and legal matters (e)   15     (15 ) (14 ) 0.2   (0.04 )
Tax matters (f)         1   (0.2 )  
Adjusted $ 2,401   $ 1,222   $ 235   $ 944   $ 752   16.0 % $ 1.98  
Adjusted percent net sales 65.8 % 33.5 % 6.4 % 25.9 % 20.6 %    

 

Three Months 2018 Gross Profit Selling, General & Administrative Expenses Research, Development & Engineering Expenses Operating Income Net Earnings Effective
Tax Rate
Diluted EPS
Reported $ 2,190   $ 1,190   $ 216   $ 672   $ 452   27.4 % $ 1.19  
Reported percent net sales 65.9 % 35.8 % 6.5 % 20.2 % 13.6 %    
Acquisition and integration-related charges (a)              
Inventory stepped-up to fair value 5       5   3   0.1   0.01  
Other acquisition and integration-related   (19 )   19   15     0.04  
Amortization of purchased intangible assets       110   88   0.6   0.23  
Restructuring-related and other charges (b)   (22 )   22   17   0.3   0.05  
Medical device regulations (c)     (2 ) 2   1     0.01  
Recall-related matters (d)       2   2      
Regulatory and legal matters (e)   (23 )   23   18   0.3   0.04  
Tax matters (f)         74   (11.9 ) 0.19  
Adjusted $ 2,195   $ 1,126   $ 214   $ 855   $ 670   16.8 % $ 1.76  
Adjusted percent net sales 66.1 % 33.9 % 6.4 % 25.7 % 20.2 %    

 

Six Months 2019 Gross Profit Selling, General & Administrative Expenses Research, Development & Engineering Expenses Operating Income Net Earnings Effective
Tax Rate
Diluted EPS
Reported $ 4,663   $ 2,685   $ 471   $ 1,141   $ 892   14.6 % $ 2.35  
Reported percent net sales 65.1 % 37.5 % 6.6 % 15.9 % 12.4 %    
Acquisition and integration-related charges (a)              
Inventory stepped-up to fair value 38       38   29   0.3   0.08  
Other acquisition and integration-related   (153 )   153   118   1.2   0.31  
Amortization of purchased intangible assets       236   189   1.1   0.50  
Restructuring-related and other charges (b) 11   (88 )   98   82   0.1   0.21  
Medical device regulations (c) 1     (18 ) 19   15   0.1   0.04  
Recall-related matters (d)       130   116   (0.6 ) 0.31  
Regulatory and legal matters (e)   (10 )   10   5   0.3   0.01  
Tax matters (f)         20   (1.9 ) 0.05  
Adjusted $ 4,713   $ 2,434   $ 453   $ 1,825   $ 1,466   15.2 % $ 3.86  
Adjusted percent net sales 65.8 % 34.0 % 6.3 % 25.5 % 20.5 %    

 

Six Months 2018 Gross Profit Selling, General & Administrative Expenses Research, Development & Engineering Expenses Operating Income Net Earnings Effective
Tax Rate
Diluted EPS
Reported $ 4,327   $ 2,426   $ 420   $ 1,263   $ 895   23.2 % $ 2.35  
Reported percent net sales 65.9 % 37.0 % 6.4 % 19.2 % 13.6 %    
Acquisition and integration-related charges (a)              
Inventory stepped-up to fair value 11       11   7   0.2   0.02  
Other acquisition and integration-related   (30 )   30   24     0.06  
Amortization of purchased intangible assets       212   171   0.5   0.45  
Restructuring-related and other charges (b) 5   (80 )   85   67   0.4   0.18  
Medical device regulations (c) 1     (2 ) 3   2     0.01  
Recall-related matters (d)       6   5     0.01  
Regulatory and legal matters (e)   (55 )   55   42   0.4   0.11  
Tax matters (f)         95   (8.2 ) 0.25  
Adjusted $ 4,344   $ 2,261   $ 418   $ 1,665   $ 1,308   16.5 % $ 3.44  
Adjusted percent net sales 66.2 % 34.5 % 6.4 % 25.4 % 19.9 %    

 

(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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