01—Abstract
Summary
Summary of the 10-K filed February 11, 2016. Cited figures are marked; the original filing is the authoritative source.
Stryker Corporation's 2015 10-K filing reports on a year of moderate revenue growth, driven by increased unit volume and product mix, partially offset by pricing pressures and currency headwinds.
The company's diverse medical technology portfolio, spanning Orthopaedics, MedSurg, and Neurotechnology & Spine, generated $9.95 billiona in net sales. Net earnings saw a significant increase to $1.44 billion, largely due to a substantial reduction in recall charges compared to the prior year. Despite ongoing investments in R&D and strategic acquisitions, the company maintained a strong financial position with robust operating cash flow and significant liquidity.
Investors should note the ongoing impact of the Rejuvenate and ABG II hip stem recall, which continues to incur charges, though at a reduced level. The company also highlighted its capital allocation strategy prioritizing acquisitions, dividends, and share repurchases.
02—Key points
Key Highlights
- Stryker reported 2015 net sales of $9.95 billion, a 2.8% increase year-over-year, with organic constant currency growth of 6.1% excluding acquisitions and currency impacts.
- Net earnings significantly increased to $1.44 billion in 2015, up from $515 million in 2014, primarily due to a reduction in recall charges.
- The Orthopaedics segment, Stryker's largest, generated $4.22 billion in net sales, showing a modest 1.7% increase as reported.
- MedSurg segment sales reached $3.90 billion, up 3.0% year-over-year, driven by Instruments and Medical product shipments.
- Neurotechnology and Spine segment sales grew by 5.0% to $1.83 billion, propelled by higher shipments of neurotechnology products.
- Recall charges related to the Rejuvenate and ABG II hip stems decreased substantially to $296 million in 2015 from $761 million in 2014.
- The company continued its acquisition strategy, notably acquiring CHG Hospital Beds, Inc. in 2015 and announcing the agreement to acquire Sage Products, LLC in early 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Stryker Corp kept $0.14.
- Revenue$9.95B100.0%
- Cost of revenue−$3.34B33.6%
- Gross profit$6.60B66.4%
- Operating costs−$4.74B47.7%
- Operating income$1.86B18.7%
- Interest, other & tax−$422.0M4.2%
- Net income$1.44B14.5%
Where FY2015 revenue went
$9.95B- SG&A: $3.61B, 36% of revenue
- Cost of revenue: $3.34B, 34% of revenue
- Net income: $1.44B, 14% of revenue
- R&D: $625.0M, 6.3% of revenue
- Other operating costs: $506.0M, 5.1% of revenue
- Interest, other & tax: $422.0M, 4.2% of revenue
Kept 14% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 11, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $9.95B$9.68B | +2.8% |
| Cost of Revenue | $3.34B$3.32B | +0.8% |
| Gross Profit | $6.60B$6.36B | +3.9% |
| R&D Expenses | $625.00M$614.00M | +1.8% |
| SG&A Expenses | $3.61B$3.55B | +1.8% |
| Operating Expenses | $4.74B$5.11B | −7.2% |
| Operating Income | $1.86B$1.25B | +49.4% |
| Interest Expense | $108.00M$113.00M | −4.4% |
| Net Income | $1.44B$515.00M | +179.4% |
| EPS (Basic) | $3.82$1.36 | +180.9% |
| EPS (Diluted) | $3.78$1.34 | +182.1% |
| Shares Outstanding (Basic) | 376.60M378.50M | −0.5% |
| Shares Outstanding (Diluted) | 380.90M382.80M | −0.5% |
05—Questions
Frequently Asked Questions
What were the main drivers of Stryker's revenue growth in 2015?
Stryker's revenue growth in 2015 was primarily driven by higher product shipments across key areas, including neurotechnology, trauma and extremities, medical equipment, and instruments. Organic constant currency growth, excluding the impact of acquisitions and currency fluctuations, was 6.1%.
How did the Rejuvenate and ABG II hip stem recall affect the company's financial results in 2015?
The recall-related charges, net of insurance proceeds, decreased significantly to $296 million in 2015, compared to $761 million in 2014. While the charges were lower, the company made substantial recall-related payments of $1.2 billion in 2015 under the US settlement agreement, and the ultimate cost to resolve the matter globally remains uncertain but is estimated to be between $1.82 billion and $2.42 billion.
What is Stryker's capital allocation strategy, and how was it executed in 2015?
Stryker's capital allocation strategy prioritizes acquisitions, followed by dividends and share repurchases. In 2015, the company invested $153 million in acquisitions, paid $521 million in dividends, and used $700 million for share repurchases. They also announced their intent to acquire Sage Products, LLC for $2.775 billion in early 2016.
What are the main risks and uncertainties facing Stryker, as highlighted in the filing?
Key risks include the uncertain impact of healthcare reform in the US, potential product liability claims (especially related to past recalls), intellectual property litigation, extensive governmental regulation, competition, and risks associated with international operations and future acquisitions. The company also faces risks related to foreign currency exchange rate fluctuations and potential failure of IT systems.
06—Continue