10-QPeriod: Q3 FY2017

STRYKER CORP Quarterly Report for Q3 Ended Sep 30, 2017

Filed October 27, 2017For Securities:SYK

Summary

Stryker Corporation reported solid performance for the third quarter and the first nine months of 2017, demonstrating consistent sales growth across its key segments: Orthopaedics, MedSurg, and Neurotechnology and Spine. Net sales increased by 6.1% in the third quarter and 9.9% for the nine-month period, driven by both organic growth and strategic acquisitions. The company's profitability also showed improvement, with net earnings rising significantly year-over-year, and diluted earnings per share showing a healthy increase. Despite facing some headwinds such as recall charges and integration costs related to recent acquisitions, Stryker maintained a strong financial position. The company generated substantial cash flow from operations, enabling it to fund its strategic initiatives, including acquisitions and share repurchases, while also returning capital to shareholders through dividends. The report highlights Stryker's commitment to innovation and expanding its product portfolio through acquisitions, positioning it for continued growth in the medical technology sector.

Financial Highlights

52 data points
Beta

Revenue

$3.01B

66.0% Gross Margin

Net Income

$434.00M

14.4% Net Margin

EPS (Diluted)

$1.14

Total Assets

$21.48B

Cash & Equivalents

$2.59B

Free Cash Flow

-$63.00M

Financial Statements
Beta
Revenue$3.01B
Cost of Revenue$1.02B
Gross Profit$1.98B
R&D Expenses$198.00M
SG&A Expenses$1.10B
Operating Expenses$1.46B
Operating Income$525.00M
Net Income$434.00M
EPS (Basic)$1.16
EPS (Diluted)$1.14
Shares Outstanding (Basic)374.20M
Shares Outstanding (Diluted)380.20M

Key Highlights

  • 1Consolidated net sales increased by 6.1% in Q3 2017 and 9.9% for the first nine months of 2017 compared to the prior year periods, demonstrating continued top-line growth.
  • 2Net earnings for Q3 2017 rose to $434 million, a 22.3% increase year-over-year, and for the nine-month period to $1,269 million, up 11.6%.
  • 3Diluted earnings per share (EPS) saw significant growth, increasing by 21.3% in Q3 to $1.14 and by 11.0% for the nine months to $3.34.
  • 4The company completed the acquisition of NOVADAQ Technologies Inc. in September 2017 for approximately $716 million, enhancing its MedSurg segment's offerings in fluorescence imaging technology.
  • 5Recall charges increased significantly due to the Rejuvenate and ABG II hip stem recalls and new Sage Products oral care recalls, impacting operating expenses.
  • 6Cash provided by operating activities was $880 million for the nine months ended September 30, 2017, though this was lower than the prior year's $1,257 million, largely due to higher recall-related payments.
  • 7Stryker continued to return capital to shareholders, with dividends paid per common share increasing by 11.8% for the nine months of 2017.

Frequently Asked Questions

Sales growth in the third quarter of 2017 was driven by a combination of increased unit volume across key product lines such as endoscopy, trauma and extremities, neurotechnology, instruments, and knee products, as well as the impact of acquisitions. Excluding acquisitions and currency fluctuations, sales grew 5.8% in constant currency.

Profitability improved significantly. Net earnings increased by 22.3% in the third quarter and 11.6% for the first nine months of 2017. Diluted earnings per share also saw substantial growth, up 21.3% for the quarter and 11.0% for the nine-month period, reflecting improved operational performance and benefits from acquisitions.

The company experienced increased recall charges, particularly related to the Rejuvenate and ABG II hip stems and new Sage Products oral care recalls. These charges impacted operating expenses and, consequently, net earnings. The company also made significant recall-related payments, contributing to a decrease in cash provided by operating activities compared to the prior year.

Stryker utilized a mix of operating cash flow, existing credit facilities, and debt issuance to finance its operations and strategic initiatives. The company generated $880 million in operating cash flow for the nine months and had approximately $1,542 million in borrowing capacity available. It also continued to return capital to shareholders through dividends and share repurchases.