01—Abstract
Summary
Summary of the 10-K filed February 8, 2018. Cited figures are marked; the original filing is the authoritative source.
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 billiona, 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%b. 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.
02—Key points
Key Highlights
- Total net sales grew by 9.9% to $12.44 billion in 2017, with organic sales growth of 8.2% (excluding acquisitions and currency impacts).
- The 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).
- Stryker 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.
- Net 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.
- Despite the reported net earnings decrease, adjusted net earnings per diluted share grew by a healthy 11.9%, demonstrating strong operational performance.
- The 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.
- Stryker 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.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Stryker Corp kept $0.08.
- Revenue$12.44B100.0%
- Cost of revenue−$4.26B34.3%
- Gross profit$8.18B65.7%
- Operating costs−$5.88B47.3%
- Operating income$2.30B18.5%
- Interest, other & tax−$1.28B10.3%
- Net income$1.02B8.2%
Where FY2017 revenue went
$12.44B- SG&A: $4.55B, 37% of revenue
- Cost of revenue: $4.27B, 34% of revenue
- Net income: $1.02B, 8.2% of revenue
- R&D: $787.0M, 6.3% of revenue
- Other operating costs: $537.0M, 4.3% of revenue
- Interest, other & tax: $1.28B, 10% of revenue
Kept 8.2% as net incomeNet income $1.02B · 8.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 8, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $12.44B$11.32B | +9.9% |
| Cost of Revenue | $4.27B$3.83B | +11.5% |
| Gross Profit | $8.18B$7.50B | +9.0% |
| R&D Expenses | $787.00M$715.00M | +10.1% |
| SG&A Expenses | $4.55B$4.14B | +10.0% |
| Operating Expenses | $5.88B$5.33B | +10.4% |
| Operating Income | $2.30B$2.17B | +5.6% |
| Interest Expense | $247.00M$228.00M | +8.3% |
| Net Income | $1.02B$1.65B | −38.1% |
| EPS (Basic) | $2.73$4.40 | −38.0% |
| EPS (Diluted) | $2.68$4.35 | −38.4% |
| Shares Outstanding (Basic) | 374.00M374.10M | 0.0% |
| Shares Outstanding (Diluted) | 380.10M378.50M | +0.4% |
05—Questions
Frequently Asked Questions
What were the key drivers of Stryker's sales growth in 2017?
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.
How did the Tax Cuts and Jobs Act of 2017 impact Stryker's financial results?
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.
What is the company's strategy regarding acquisitions and R&D?
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.
What are the significant risks and legal matters facing Stryker?
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.
06—Continue