01—Abstract
Summary
Summary of the 10-K filed February 9, 2017. Cited figures are marked; the original filing is the authoritative source.
Stryker Corporation's 2016 Form 10-K highlights a strong year of growth, with net sales increasing by 13.9% to $11.3 billiona, driven by robust performance across its business segments, particularly MedSurg and Neurotechnology and Spine.
The company successfully executed its strategic capital allocation, investing significantly in acquisitions, notably Sage Products and Physio-Control, which are expected to bolster its offerings in intensive care disposable products and emergency medical equipment, respectively. While reporting net earnings of $1.65 billionb, an increase from the previous year, investors should note the impact of recall charges related to the Rejuvenate and ABG II hip stems, which continue to affect the company's financial results, though at a reduced level compared to prior years. The company also demonstrated a commitment to shareholder returns through dividend payments.
Looking ahead, Stryker is well-positioned with a diversified product portfolio and a continued focus on innovation, as evidenced by its consistent investment in research and development. The company faces a competitive landscape and regulatory scrutiny, common in the medical technology sector, but its strong financial position, including significant cash and credit facilities, provides a solid foundation for future growth and its strategic objectives, including further acquisitions and organic expansion. Investors should monitor the ongoing resolution of product liability matters and the company's ability to integrate recent acquisitions successfully.
02—Key points
Key Highlights
- Stryker reported a 13.9% increase in net sales for 2016, reaching $11.3 billion, indicating strong top-line growth.
- The company made significant strategic acquisitions in 2016, including Sage Products ($2.875 billion) and Physio-Control ($1.299 billion), expanding its product portfolio in key growth areas.
- Net earnings grew to $1.647 billion in 2016, a 14.5% increase from 2015, demonstrating improved profitability.
- The MedSurg segment experienced substantial growth (25.6% increase in net sales), largely driven by acquisitions and strong performance in Instruments, Endoscopy, and Medical product lines.
- Recall charges related to the Rejuvenate and ABG II hip stems decreased significantly to $158 million in 2016 from $296 million in 2015, signaling progress in resolving these legacy issues.
- The company maintained a strong balance sheet, with total assets growing to $20.4 billion and shareholders' equity at $9.55 billion, supported by consistent operating cash flow.
- Stryker continued its capital allocation strategy, investing $4.33 billion in acquisitions, paying $568 million in dividends, and repurchasing shares.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Stryker Corp kept $0.15.
- Revenue$11.32B100.0%
- Cost of revenue−$3.82B33.7%
- Gross profit$7.50B66.3%
- Operating costs−$5.33B47.1%
- Operating income$2.17B19.2%
- Interest, other & tax−$528.0M4.7%
- Net income$1.65B14.5%
Where FY2016 revenue went
$11.32B- SG&A: $4.14B, 37% of revenue
- Cost of revenue: $3.83B, 34% of revenue
- Net income: $1.65B, 15% of revenue
- R&D: $715.0M, 6.3% of revenue
- Other operating costs: $468.0M, 4.1% of revenue
- Interest, other & tax: $528.0M, 4.7% of revenue
Kept 15% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 9, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $11.32B$9.95B | +13.9% |
| Cost of Revenue | $3.83B$3.34B | +14.5% |
| Gross Profit | $7.50B$6.60B | +13.7% |
| R&D Expenses | $715.00M$625.00M | +14.4% |
| SG&A Expenses | $4.14B$3.61B | +14.6% |
| Operating Expenses | $5.33B$4.74B | +12.4% |
| Operating Income | $2.17B$1.86B | +16.9% |
| Interest Expense | $228.00M$108.00M | +111.1% |
| Net Income | $1.65B$1.44B | +14.5% |
| EPS (Basic) | $4.40$3.82 | +15.2% |
| EPS (Diluted) | $4.35$3.78 | +15.1% |
| Shares Outstanding (Basic) | 374.10M376.60M | −0.7% |
| Shares Outstanding (Diluted) | 378.50M380.90M | −0.6% |
05—Questions
Frequently Asked Questions
What were the primary drivers of Stryker's sales growth in 2016?
Stryker's net sales grew by 13.9% in 2016. The MedSurg segment showed significant growth (25.6%), largely due to the acquisitions of Sage Products and Physio-Control, along with increased shipments of instruments, endoscopy, and medical products. The Orthopaedics and Neurotechnology & Spine segments also contributed to growth through increased unit volumes, particularly in knees and trauma/extremities for Orthopaedics, and neurotechnology products for Neurotechnology & Spine.
How is Stryker addressing the legacy recall charges related to the Rejuvenate and ABG II hip stems?
Stryker recorded $158 million in recall charges, net of insurance proceeds, in 2016, a significant decrease from $296 million in 2015. The company has entered into a settlement agreement for eligible patients and continues to offer support for recall-related care. While the matter is ongoing and the ultimate cost is difficult to predict, the reduced charges suggest progress in resolving this issue.
What is Stryker's strategy for capital allocation?
Stryker's capital allocation strategy prioritizes acquisitions, followed by dividends and share repurchases. In 2016, the company invested approximately $4.33 billion in acquisitions, paid $568 million in dividends, and used $13 million for share repurchases, demonstrating a continued focus on strategic growth and returning value to shareholders.
How did the recent acquisitions of Sage Products and Physio-Control impact the company?
The acquisitions of Sage Products (intensive care disposable products) and Physio-Control (monitors/defibrillators, AEDs) were significant strategic moves within the MedSurg segment. They expanded Stryker's product offerings and contributed substantially to the segment's revenue growth in 2016, representing a key part of the company's growth strategy.
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