Stryker’s Third-Quarter Sales Rise 1.3 Percent

Sagging hip and knee sales failed to spoil Stryker Corp.’s third-quarter earnings report.

The orthopedic device behemoth reported a 1.3 percent increase in net sales (to $2.42 billion), driven largely by improved volume. However, pricing headwinds partially offset gains, and a strong U.S. dollar adversely impacted revenue 4.6 percent. Acquisitions hardly impacted results, adding only 0.6 percent in expenses.

U.S. sales were up 7.8 percent year over year to $1.76 billion, driven by growth across all segments. Orthopedic, MedSurg, and Neurotechnology & Spine grew 9 percent, 5.3 percent and 11.4 percent, respectively.

International sales fell 12.6 percent (up 1.8 percent at constant currency) to $664 million, though international sales of Orthopedic, MedSurg, and Neurotechnology & Spine products increased 0.5 percent, 0.4 percent and 7.2 percent, respectively. Geographically, strong growth in Europe and Australia partially were offset by weakness in the Chinese and Latin American businesses.

Orthopedic sales climbed 0.3 percent (up 5.8 percent at constant currency) to $1.02 billion, driven by growth of 9.1 percent in Trauma & Extremities sales and 16.7 percent in other sales. Hips and Knees sales increased 3.1 percent and 3.5 percent, respectively, in constant currency (to $307 million and $332 million), but slipped 2.9 percent and 1.1 percent as reported. A 2.9 percent spike in Trauma & Extremities ($318 million) reflected a strong double-digit organic growth for U.S. foot and ankle business.

MedSurg sales increased 0.6 percent (up 4.1 percent at constant currency) year over year to $943 million. Endoscopy, Instruments and Medical sales improved 1.4 percent, 6.6 percent and 5.7 percent, respectively.

Neurotechnology and Spine segment sales jumped 5 percent (up 9.9 percent at constant currency) to $458 million, owing primarily to a 15.9 percent surge in Neurotechnology sales, which include neurovascular, craniomaxillofacial and neuro spine ENT. Spine sales increased 1.9 percent on a year-over-year basis to $183 million, a 1.5 percent decrease on a reported basis.

“We delivered another solid quarter with organic sales again exceeding 5 percent, putting us on pace to achieve our sales and adjusted EPS [earnings per share] targets for 2015,” said Kevin A. Lobo, chairman/CEO. “I am pleased with our disciplined execution as we work with our customers to make healthcare better.”

Adjusted gross margin expanded 120 basis points (bps) to 66.9 percent, primarily driven by favorable mix and operational efficiency.

Research and development (R&D) expenses, as a percentage of sales, remained unchanged at 6.4 percent ($155 million). On the other hand, adjusted selling, general and administrative (SG&A) expenses increased 30 bps, primarily due to investments in selling and marketing activities, and in support of its new regional headquarters in Europe.

Adjusted operating margin expanded 100 bps to 24.9 percent on a year-over-year basis, on the back of improving gross margins, partially offset by prevailing pricing headwinds.
 
Stryker finished the third quarter with cash and cash equivalents of $3.16 billion and long-term debt (excluding current maturities) of $2.51 billion. The company repurchased shares worth $446 million in the first nine months of 2015. The company now has about $2 billion available for further share repurchases.

Company executives continue to expect sales growth of 6.5 percent to 7.5 percent at constant currency. Organic growth is forecasted in the range of 5.5 percent to 6.5 percent. Stryker increased the lower range of its earnings guidance for 2015. Adjusted earnings are now expected in the range of $5.07 to $5.12, as compared to the previous range of $5.06 to $5.12 per share, taking into account an unfavorable foreign exchange impact of 25 cents for full-year 2015.