10-KPeriod: FY2018

STRYKER CORP Annual Report, Year Ended Dec 31, 2018

Filed February 7, 2019For Securities:SYK

Summary

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 billion, 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.

Financial Highlights

52 data points
Beta

Revenue

$13.60B

65.7% Gross Margin

Net Income

$3.55B

26.1% Net Margin

EPS (Diluted)

$9.34

Total Assets

$27.23B

Cash & Equivalents

$3.62B

Free Cash Flow

$2.04B

Financial Statements
Beta
Revenue$13.60B
Cost of Revenue$4.66B
Gross Profit$8.94B
R&D Expenses$862.00M
SG&A Expenses$5.10B
Operating Expenses$6.40B
Operating Income$2.54B
Interest Expense$264.00M
Net Income$3.55B
EPS (Basic)$9.50
EPS (Diluted)$9.34
Shares Outstanding (Basic)374.10M
Shares Outstanding (Diluted)380.30M

Key Highlights

  • 1Stryker reported total net sales of $13.6 billion for 2018, a 9.3% increase from 2017, with 9.0% growth in constant currency.
  • 2The 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.
  • 3Net 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.
  • 4The Neurotechnology and Spine segment showed the strongest growth, with sales increasing by 18.0% as reported and 17.4% in constant currency.
  • 5Stryker 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.
  • 6The company's strong operational cash flow of $2.61 billion in 2018 supports its strategic initiatives and financial stability.
  • 7Stryker continues to manage risks related to regulatory compliance, competition, and international operations, as detailed in the Risk Factors section.

Frequently Asked Questions

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.

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.

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.

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.