10-KPeriod: FY2015

STRYKER CORP Annual Report, Year Ended Dec 31, 2015

Filed February 11, 2016For Securities:SYK

Summary

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 billion 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.

Financial Highlights

54 data points
Beta

Revenue

$9.95B

66.4% Gross Margin

Net Income

$1.44B

14.5% Net Margin

EPS (Diluted)

$3.78

Total Assets

$16.22B

Cash & Equivalents

$3.38B

Free Cash Flow

$711.00M

Financial Statements
Beta
Revenue$9.95B
Cost of Revenue$3.34B
Gross Profit$6.60B
R&D Expenses$625.00M
SG&A Expenses$3.61B
Operating Expenses$4.74B
Operating Income$1.86B
Interest Expense$108.00M
Net Income$1.44B
EPS (Basic)$3.82
EPS (Diluted)$3.78
Shares Outstanding (Basic)376.60M
Shares Outstanding (Diluted)380.90M

Key Highlights

  • 1Stryker 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.
  • 2Net earnings significantly increased to $1.44 billion in 2015, up from $515 million in 2014, primarily due to a reduction in recall charges.
  • 3The Orthopaedics segment, Stryker's largest, generated $4.22 billion in net sales, showing a modest 1.7% increase as reported.
  • 4MedSurg segment sales reached $3.90 billion, up 3.0% year-over-year, driven by Instruments and Medical product shipments.
  • 5Neurotechnology and Spine segment sales grew by 5.0% to $1.83 billion, propelled by higher shipments of neurotechnology products.
  • 6Recall charges related to the Rejuvenate and ABG II hip stems decreased substantially to $296 million in 2015 from $761 million in 2014.
  • 7The 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.

Frequently Asked Questions

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%.

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.

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.

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.