Kalamazoo, Michigan – July 24, 2018 – Stryker Corporation (NYSE:SYK) reported operating results for the second quarter of 2018:
Second Quarter Highlights
| 2018 Net Sales Growth Overview | |||||||||||||||||
| Reported | Excluding ASC 606 Adoption(2) | Foreign Currency Exchange | Constant Currency | Acquisitions | Organic | ||||||||||||
| Orthopaedics | 7.6 | % | 8.0 | % | 1.4 | % | 6.6 | % | – | 6.6 | % | ||||||
| MedSurg | 8.9 | 10.0 | 0.8 | 9.2 | 1.9 | 7.3 | |||||||||||
| Neurotechnology and Spine | 19.4 | 20.1 | 1.6 | 18.5 | 6.1 | 12.4 | |||||||||||
| Total | 10.3 | % | 11.0 | % | 1.1 | % | 9.9 | % | 2.0 | % | 7.9 | % | |||||
“We continue to execute on our strategy and delivered another strong quarter of organic sales growth, adjusted operating margin expansion and adjusted net earnings per diluted share,” said Kevin A. Lobo, Chairman and Chief Executive Officer. “Our diversified and decentralized business unit model combined with strong talent and culture continue to serve us well. We have raised our guidance to reflect the strong results and positive outlook for the remainder of the year.”
Sales Analysis (percentages exclude ASC 606(2) adoption impact)
Consolidated net sales of $3.3 billion increased 11.0% in the quarter and 9.9% in constant currency. Organic net sales increased 7.9% in the quarter including 9.0% from increased unit volume partially offset by 1.1% from lower prices.
Orthopaedics net sales of $1.2 billion increased 8.0% in the quarter and 6.6% in constant currency. Organic net sales increased 6.6% in the quarter including 8.9% from increased unit volume partially offset by 2.3% from lower prices.
MedSurg net sales of $1.5 billion increased 10.0% in the quarter and 9.2% in constant currency. Organic net sales increased 7.3% in the quarter including 7.6% from increased unit volume partially offset by 0.3% from lower prices.
Neurotechnology and Spine net sales of $0.6 billion increased 20.1% in the quarter and 18.5% in constant currency. Organic net sales increased 12.4% in the quarter including 13.3% from increased unit volume partially offset by 0.9% from lower prices.
Earnings Analysis
Reported net earnings of $452 million increased 15.6% in the quarter. Reported net earnings per diluted share of $1.19 increased 15.5% in the quarter. Reported net earnings include certain items, including charges for acquisition and integration-related activities, the amortization of purchased intangible assets, restructuring-related and other charges, compliance with European Medical Devices Regulation, Rejuvenate and other recall-related matters, regulatory and legal matters and tax matters. The effect of each of these matters on reported net earnings and net earnings per diluted share appear in the reconciliation of GAAP to non-GAAP financial measures. Excluding the aforementioned items increases gross profit margin from 65.9% to 66.1% in the quarter and increases operating income margin from 20.2% to 25.7%(1), including a 20 basis point favorable impact related to the adoption of the new revenue recognition standard(2). Excluding the impact of the items described above, adjusted net earnings(4) of $670 million increased 15.3% in the quarter. Adjusted net earnings per diluted share(3) of $1.76 increased 15.0% in the quarter.
2018 Outlook
Based on our year-to-date performance we now expect 2018 organic net sales growth, which excludes the impact related to adoption of the new revenue recognition standard(2), to be in the range of 7.0% to 7.5% and expect adjusted net earnings per diluted share(5) to be in the range of $7.22 to $7.27. In 2018 our calculation of organic net sales growth excludes the impact of adopting ASC 606(2), which includes primarily the reclassification of costs previously reported within selling expenses to a reduction of sales, which for 2017 was approximately $112 million ($28 million per quarter). For the third quarter we expect adjusted net earnings per diluted share(5) to be in the range of $1.65 to $1.70. If foreign currency exchange rates hold near current levels, we expect net sales in the third quarter will be negatively impacted by approximately 0.9% and full year will be positively impacted by approximately 0.5% and net earnings per diluted share will be neutral in the third quarter and positively impacted by $0.05 in the full year.
(1) A reconciliation of operating income to adjusted operating income, a non-GAAP financial measure, and other important information accompanies this press release.
(2) Consistent with previous press releases and financial disclosures, we adopted Accounting Standards Update 2014-09, Revenue From Contracts with Customers, as well as related amendments (ASC 606), issued by the Financial Accounting Standards Board on a modified retrospective basis, effective January 1, 2018. The impact of the adoption of ASC 606 related primarily to the reclassification of certain costs previously presented as selling, general and administrative expenses to net sales.
(3) A reconciliation of reported net earnings per diluted share to adjusted net earnings per diluted share, a non-GAAP financial measure, and other important information accompanies this press release.
(4) A reconciliation of reported net earnings to adjusted net earnings, a non-GAAP financial measure, and other important information accompanies this press release.
(5) A reconciliation of expected net earnings per diluted share to expected adjusted net earnings per diluted share for the third quarter and full year and other important information accompanies this press release.
Conference Call on Tuesday, July 24, 2018
As previously announced, Stryker will host a conference call on Tuesday, July 24, 2018 at 4:30 p.m., Eastern Time, to discuss the Company’s operating results for the quarter ended June 30, 2018 and provide an operational update.
To participate in the conference call dial (844) 826-0610 (domestic) or (973) 453-3249 (international) and be prepared to provide conference ID number 7449506 to the operator.
A simultaneous webcast of the call will be accessible via the Company’s website at www.stryker.com. The webcast will be archived on the Investors page of this site.
A recording of the call will also be available from 8:00 p.m., Eastern Time, on Tuesday, July 24, 2018, until 11:59 p.m., Eastern Time, on Tuesday, July 31, 2018. To hear this recording, you may dial (855) 859-2056 (domestic) or (404) 537-3406 (international) and enter conference ID number 7449506.
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 the Rejuvenate and ABG II matter; 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; 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 its customers, is 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, Stryker Corporation, 269-385-2600 or katherine.owen@stryker.com
For media inquiries please contact:
Yin Becker, Stryker Corporation, 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 | ||||||||||||||||||||
| 2018 | 2017 | % Change | 2018 | 2017 | % Change | ||||||||||||||||
| Net sales | $ | 3,322 | $ | 3,012 | 10.3 | % | $ | 6,563 | $ | 5,967 | 10.0 | % | |||||||||
| Cost of sales | 1,132 | 1,021 | 10.9 | 2,236 | 2,012 | 11.1 | % | ||||||||||||||
| Gross profit | $ | 2,190 | $ | 1,991 | 10.0 | % | $ | 4,327 | $ | 3,955 | 9.4 | % | |||||||||
| % of sales | 65.9 | % | 66.1 | % | 65.9 | % | 66.3 | % | |||||||||||||
| Research, development and engineering expenses | 216 | 192 | 12.5 | 420 | 384 | 9.4 | % | ||||||||||||||
| Selling, general and administrative expenses | 1,190 | 1,130 | 5.3 | 2,426 | 2,232 | 8.7 | % | ||||||||||||||
| Recall charges | 2 | 72 | (97.2 | ) | 6 | 98 | (93.9 | )% | |||||||||||||
| Amortization of intangible assets | 110 | 95 | 15.8 | 212 | 183 | 15.8 | % | ||||||||||||||
| Total operating expenses | $ | 1,518 | $ | 1,489 | 1.9 | % | $ | 3,064 | $ | 2,897 | 5.8 | % | |||||||||
| Operating income | $ | 672 | $ | 502 | 33.9 | % | $ | 1,263 | $ | 1,058 | 19.4 | % | |||||||||
| % of sales | 20.2 | % | 16.7 | % | 19.2 | % | 17.7 | % | |||||||||||||
| Other income (expense), net | (49 | ) | (58 | ) | (15.5 | ) | (98 | ) | (115 | ) | (14.8 | )% | |||||||||
| Earnings before income taxes | $ | 623 | $ | 444 | 40.3 | % | $ | 1,165 | $ | 943 | 23.5 | % | |||||||||
| Income taxes | 171 | 53 | 222.6 | 270 | 108 | 150.0 | % | ||||||||||||||
| Net earnings | $ | 452 | $ | 391 | 15.6 | % | $ | 895 | $ | 835 | 7.2 | % | |||||||||
| Net earnings per share of common stock: | |||||||||||||||||||||
| Basic net earnings per share of common stock | $ | 1.21 | $ | 1.04 | 16.3 | % | $ | 2.39 | $ | 2.23 | 7.2 | % | |||||||||
| Diluted net earnings per share of common stock | $ | 1.19 | $ | 1.03 | 15.5 | % | $ | 2.35 | $ | 2.20 | 6.8 | % | |||||||||
| Weighted-average shares outstanding: | |||||||||||||||||||||
| Basic | 373.9 | 373.9 | 373.9 | 373.7 | |||||||||||||||||
| Diluted | 380.1 | 379.8 | 380.4 | 379.6 | |||||||||||||||||
