10-KPeriod: FY2017

STRYKER CORP Annual Report, Year Ended Dec 31, 2017

Filed February 8, 2018For Securities:SYK

Summary

Stryker Corporation's 2017 10-K filing reveals a company demonstrating robust growth and strategic acquisitions in the medical technology sector. Total net sales increased by 9.9% to $12.44 billion, driven by strong performance in the MedSurg and Orthopaedics segments, with organic sales growth of 8.2% excluding acquisitions and currency impacts. The company's strategic focus on acquisitions is evident with the completion of NOVADAQ and the announced agreement to acquire Entellus Medical, underscoring its commitment to expanding its innovative product portfolio and market reach. While the company reported a decrease in net earnings to $1.02 billion from $1.65 billion in the prior year, largely impacted by a significant one-time tax expense related to the Tax Cuts and Jobs Act of 2017, the underlying operational performance remains strong. Adjusted net earnings per diluted share saw a healthy increase of 11.9%. Investors should note the ongoing legal proceedings, particularly related to the Rejuvenate and ABG II hip stems recall, which continues to represent a significant financial contingency, though the company has established reserves for these matters.

Financial Highlights

54 data points
Beta

Revenue

$12.44B

65.7% Gross Margin

Net Income

$1.02B

8.2% Net Margin

EPS (Diluted)

$2.68

Total Assets

$22.20B

Cash & Equivalents

$2.54B

Free Cash Flow

$961.00M

Financial Statements
Beta
Revenue$12.44B
Cost of Revenue$4.27B
Gross Profit$8.18B
R&D Expenses$787.00M
SG&A Expenses$4.55B
Operating Expenses$5.88B
Operating Income$2.30B
Interest Expense$247.00M
Net Income$1.02B
EPS (Basic)$2.73
EPS (Diluted)$2.68
Shares Outstanding (Basic)374.00M
Shares Outstanding (Diluted)380.10M

Key Highlights

  • 1Total net sales grew by 9.9% to $12.44 billion in 2017, with organic sales growth of 8.2% (excluding acquisitions and currency impacts).
  • 2The MedSurg segment was the largest contributor to net sales, increasing by 13.6% year-over-year, followed by Orthopaedics (6.6% growth) and Neurotechnology and Spine (8.2% growth).
  • 3Stryker completed two significant acquisitions in 2017: NOVADAQ Technologies Inc. for approximately $716 million and announced a definitive merger agreement to acquire Entellus Medical, Inc. for approximately $662 million.
  • 4Net earnings decreased to $1.02 billion from $1.65 billion in 2016, primarily due to a substantial income tax expense related to the Tax Cuts and Jobs Act of 2017.
  • 5Despite the reported net earnings decrease, adjusted net earnings per diluted share grew by a healthy 11.9%, demonstrating strong operational performance.
  • 6The company continues to invest in research and development, with R&D expenses representing 6.3% of net sales in 2017, highlighting a commitment to innovation.
  • 7Stryker is managing significant contingent liabilities related to the Rejuvenate and ABG II Modular-Neck hip stems recall, with an estimated range of probable loss between $2.07 billion and $2.31 billion.

Frequently Asked Questions

Stryker's sales growth in 2017 was driven by increased unit volume across its key product lines, particularly in neurotechnology, endoscopy, knees, trauma and extremities, and instruments. This was further bolstered by strategic acquisitions, including NOVADAQ Technologies Inc., and continued market demand for its innovative medical technology solutions.

The Tax Cuts and Jobs Act of 2017 significantly impacted Stryker's reported net earnings by requiring a one-time transition tax on undistributed foreign earnings. This resulted in a substantial income tax expense for 2017, leading to a decrease in reported net earnings compared to the prior year. While impacting reported figures, the company's operational performance, as reflected in adjusted earnings, remained strong.

Stryker's strategy prioritizes acquisitions to complement its business portfolio and invests in research and development to drive future growth. In 2017, the company completed the acquisition of NOVADAQ and announced its intent to acquire Entellus Medical. R&D expenses remained consistent at 6.3% of net sales, reflecting a continued commitment to developing innovative products and technologies.

Key risks include extensive government regulation in the healthcare industry, product liability claims, intellectual property litigation, and market risks such as exchange rate fluctuations. Notably, Stryker is managing significant liabilities related to the recall of its Rejuvenate and ABG II hip stems, with an estimated range of probable loss of $2.07 billion to $2.31 billion. The company is also subject to potential impacts from US healthcare reform legislation and the medical device excise tax.