10-QPeriod: Q2 FY2012

STRYKER CORP Quarterly Report for Q2 Ended Jun 30, 2012

Filed July 24, 2012For Securities:SYK

Summary

Stryker Corporation's second quarter and first six months of 2012 results show a solid increase in net sales and earnings compared to the prior year. Driven by growth in the Neurotechnology and Spine segment and strong performance in the U.S. market, total net sales rose by 2.9% for the quarter and 5.1% year-to-date. This growth was achieved despite some headwinds from foreign currency fluctuations and pricing pressures. The company also demonstrated improved operational efficiency, with gross profit margins expanding. While selling, general, and administrative expenses saw an increase, this was largely attributable to acquisition-related costs and a significant charge related to the OtisKnee device settlement. Excluding these one-time items and other charges, adjusted net earnings and adjusted diluted earnings per share showed robust year-over-year growth, indicating the underlying strength of Stryker's core business operations. The company's liquidity remains strong, with substantial cash and marketable securities, and ample borrowing capacity available.

Financial Highlights

50 data points
Beta

Revenue

$2.11B

68.1% Gross Margin

Net Income

$325.00M

15.4% Net Margin

EPS (Diluted)

$0.85

Total Assets

$12.26B

Cash & Equivalents

$1.39B

Free Cash Flow

$406.00M

Financial Statements
Beta
Revenue$2.11B
Cost of Revenue$672.00M
Gross Profit$1.43B
R&D Expenses$116.00M
SG&A Expenses$823.00M
Operating Expenses$989.00M
Operating Income$445.00M
Net Income$325.00M
EPS (Basic)$0.85
EPS (Diluted)$0.85
Shares Outstanding (Basic)381.00M
Shares Outstanding (Diluted)383.30M

Key Highlights

  • 1Net sales increased by 2.9% to $2,106 million for the three months ended June 30, 2012, and by 5.1% to $4,267 million for the six months ended June 30, 2012, compared to the prior year periods.
  • 2Gross profit increased by 7.6% for the quarter and 8.5% for the six months, indicating improved profitability on sales.
  • 3Neurotechnology and Spine segment showed strong growth, with net sales up 10.1% for the quarter and 11.2% year-to-date.
  • 4U.S. sales demonstrated resilience, increasing by 7.7% for the quarter and 8.0% year-to-date, while international sales experienced a slight decrease in the quarter.
  • 5Restructuring charges of $19 million for the quarter and $33 million year-to-date were incurred as part of a workforce reduction initiative.
  • 6The company recorded a $33 million charge related to the potential settlement of the OtisKnee device matter.
  • 7Adjusted net earnings increased by 6.2% for the quarter and 6.8% for the six months, excluding the impact of acquisition/integration charges, restructuring, and the OtisKnee settlement, demonstrating underlying business strength.

Frequently Asked Questions

Stryker reported a 2.9% increase in net sales for the second quarter of 2012, reaching $2,106 million, up from $2,046 million in the same period of 2011. This growth was primarily driven by the Neurotechnology and Spine segment and strong performance in the U.S. market, partially offset by unfavorable foreign currency exchange rates.

Stryker incurred several significant charges that affected reported net earnings. These included restructuring charges of $19 million for the quarter related to workforce reductions, and a $33 million charge for the potential settlement of the OtisKnee device matter. Additionally, acquisition and integration-related charges and the amortization of inventory step-ups from prior acquisitions also impacted results.

Stryker maintained strong liquidity, with cash and marketable securities totaling $3,460 million as of June 30, 2012. The company generated substantial cash flow from operations ($457 million for the quarter) and has significant borrowing capacity available under its credit facilities ($1,058 million). A portion of its cash is held internationally and considered indefinitely reinvested for foreign operations.

Stryker is actively assessing the impact of the U.S. healthcare reform, particularly the 2.3% excise tax on medical devices scheduled for implementation in 2013. While the full impact on patient access, reimbursement, and overall business operations is still being determined, the company anticipates it will have a significant impact and is working to understand its implications.