01—Abstract
Summary
Summary of the 10-K filed February 7, 2019. Cited figures are marked; the original filing is the authoritative source.
Stryker Corporation's 2018 10-K filing highlights a strong year characterized by significant revenue growth and strategic acquisitions.
The company reported total net sales of $13.6 billiona, representing a 9.3% increase over the prior year, driven by both organic growth and contributions from recent acquisitions. This growth was observed across all three reporting segments: Orthopaedics, MedSurg, and Neurotechnology and Spine, with Neurotechnology and Spine showing particularly robust expansion. Financially, Stryker demonstrated solid performance, with net earnings of $3.55 billion and diluted earnings per share of $9.34.
The company continued its commitment to returning value to shareholders through a balanced capital allocation strategy that included substantial investments in acquisitions, dividend payments, and share repurchases. Key strategic moves during the year included the acquisitions of K2M Group Holdings, Inc. and Entellus Medical, Inc., aimed at strengthening their positions in the spine and neurotechnology markets, respectively.
Looking ahead, Stryker faces various risks including regulatory scrutiny, competitive pressures, and the evolving healthcare landscape. However, the company's diversified product portfolio, focus on innovation, and strategic acquisitions position it well for continued growth and market leadership in the medical technology sector.
02—Key points
Key Highlights
- Stryker reported total net sales of $13.6 billion for 2018, a 9.3% increase from 2017, with 9.0% growth in constant currency.
- The company completed two significant acquisitions in 2018: K2M Group Holdings, Inc. (Spine) for approximately $1.38 billion and Entellus Medical, Inc. (ENT) for $697 million.
- Net earnings increased significantly to $3.55 billion ($9.34 per diluted share) in 2018, compared to $1.02 billion ($2.68 per diluted share) in 2017, partly due to a $1.5 billion non-cash tax benefit related to intellectual property transfer.
- The Neurotechnology and Spine segment showed the strongest growth, with sales increasing by 18.0% as reported and 17.4% in constant currency.
- Stryker continued its balanced capital allocation strategy, investing $2.45 billion in acquisitions, paying $703 million in dividends, and repurchasing $300 million of its common stock.
- The company's strong operational cash flow of $2.61 billion in 2018 supports its strategic initiatives and financial stability.
- Stryker continues to manage risks related to regulatory compliance, competition, and international operations, as detailed in the Risk Factors section.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Stryker Corp kept $0.26.
- Revenue$13.60B100.0%
- Cost of revenue−$4.66B34.3%
- Gross profit$8.94B65.7%
- Operating costs−$6.40B47.1%
- Operating income$2.54B18.7%
- Interest, other & tax$1.02B7.5%
- Net income$3.55B26.1%
Where FY2018 revenue went
$13.60B- SG&A: $5.10B, 37% of revenue
- Cost of revenue: $4.66B, 34% of revenue
- Operating income: $2.54B, 19% of revenue
- R&D: $862.0M, 6.3% of revenue
- Other operating costs: $440.0M, 3.2% of revenue
Kept 19% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 7, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $13.60B$12.44B | +9.3% |
| Cost of Revenue | $4.66B$4.27B | +9.2% |
| Gross Profit | $8.94B$8.18B | +9.3% |
| R&D Expenses | $862.00M$787.00M | +9.5% |
| SG&A Expenses | $5.10B$4.55B | +12.0% |
| Operating Expenses | $6.40B$5.88B | +8.8% |
| Operating Income | $2.54B$2.30B | +10.4% |
| Interest Expense | $264.00M$247.00M | +6.9% |
| Net Income | $3.55B$1.02B | +248.3% |
| EPS (Basic) | $9.50$2.73 | +248.0% |
| EPS (Diluted) | $9.34$2.68 | +248.5% |
| Shares Outstanding (Basic) | 374.10M374.00M | 0.0% |
| Shares Outstanding (Diluted) | 380.30M380.10M | +0.1% |
05—Questions
Frequently Asked Questions
What were Stryker's main growth drivers in 2018?
Stryker's growth in 2018 was driven by a combination of organic sales increases across its Orthopaedics, MedSurg, and Neurotechnology and Spine segments, and strategic acquisitions. The Neurotechnology and Spine segment, in particular, showed substantial growth, bolstered by the acquisition of K2M Group Holdings and strong performance in neurotechnology products. Increased unit volume in key product areas also contributed significantly to the sales growth.
How did Stryker manage its capital allocation in 2018?
Stryker followed its stated capital allocation strategy prioritizing acquisitions, dividends, and share repurchases. In 2018, the company invested approximately $2.45 billion in acquisitions, notably K2M Group Holdings and Entellus Medical. It also returned value to shareholders through $703 million in dividend payments and $300 million in share repurchases. Strong operating cash flow provided a significant source of funding for these activities.
What are the key risks highlighted by Stryker for its business operations?
Stryker identified several key risks, including extensive governmental regulation impacting manufacturing, labeling, and marketing; potential adverse impacts from healthcare reform legislation and cost containment measures; intense competition in the medical device industry; product liability claims; intellectual property litigation; and risks associated with its international operations, such as currency fluctuations and varying regulatory environments.
What was the impact of acquisitions on Stryker's financial performance in 2018?
Acquisitions played a significant role in Stryker's 2018 performance. The company completed the acquisition of K2M Group Holdings for approximately $1.38 billion and Entellus Medical for $697 million, enhancing its offerings in spine and neurotechnology. These acquisitions contributed to the reported sales growth and added to goodwill and intangible assets on the balance sheet. They also impacted operating expenses, including amortization of intangible assets.
06—Continue