10-QPeriod: Q1 FY2018

STRYKER CORP Quarterly Report for Q1 Ended Mar 31, 2018

Filed April 27, 2018For Securities:SYK

Summary

Stryker Corporation reported its first-quarter results for 2018, showcasing a solid increase in net sales driven by strong performance across its business segments. Net sales grew 9.7% as reported, and 7.2% in constant currency, with contributions from all three segments: Orthopaedics, MedSurg, and Neurotechnology and Spine. The company successfully integrated recent acquisitions, notably Entellus Medical, which bolstered the Neurotechnology and Spine segment. Despite a slight dip in reported net earnings and EPS compared to the prior year, the company demonstrated robust underlying operational improvements. Financially, Stryker maintained a healthy operational cash flow, though investing activities saw a significant outflow due to strategic acquisitions. The company also actively managed its debt, issuing new notes and repaying existing ones, while continuing its share repurchase program. The adoption of new accounting standards, particularly ASC 606 for revenue recognition, impacted comparability but was managed effectively, with management emphasizing the underlying strength of the business excluding these transitional effects. Overall, the quarter presented a picture of a growing medical technology company focused on strategic acquisitions and innovation.

Financial Highlights

53 data points
Beta

Revenue

$3.24B

65.9% Gross Margin

Net Income

$443.00M

13.7% Net Margin

EPS (Diluted)

$1.16

Total Assets

$22.13B

Cash & Equivalents

$2.18B

Free Cash Flow

$176.00M

Financial Statements
Beta
Revenue$3.24B
Cost of Revenue$1.10B
Gross Profit$2.14B
R&D Expenses$204.00M
SG&A Expenses$1.24B
Operating Expenses$1.55B
Operating Income$591.00M
Net Income$443.00M
EPS (Basic)$1.18
EPS (Diluted)$1.16
Shares Outstanding (Basic)374.00M
Shares Outstanding (Diluted)380.70M

Key Highlights

  • 1Stryker reported a 9.7% increase in net sales to $3.24 billion in Q1 2018, with constant currency sales growing 7.2%.
  • 2The Orthopaedics segment saw a 7.1% increase in net sales, driven by trauma and extremities, knee, and reconstructive capital products.
  • 3MedSurg segment net sales grew 9.3%, with strong performance in endoscopy, medical, and instrument products.
  • 4Neurotechnology and Spine segment experienced significant growth of 16.1%, primarily fueled by neurotechnology products, including the contribution from the recent Entellus acquisition.
  • 5The company completed the acquisition of Entellus Medical for $697 million, strengthening its Neurotechnology and Spine offerings.
  • 6Operating income increased by 15.9% to $591 million, with adjusted operating income margin improving to 25.0% from 24.3% year-over-year.
  • 7Cash provided by operating activities significantly improved, reaching $297 million compared to $151 million in the prior year's first quarter.

Frequently Asked Questions

Stryker's sales growth was driven by a combination of increased unit volume across its key product lines (neurotechnology, endoscopy, trauma and extremities, medical, and knee products) and the positive impact of foreign currency exchange rates. Strategic acquisitions, particularly Entellus Medical, also contributed significantly to segment growth.

Stryker adopted ASC 606, Revenue from Contracts with Customers, on January 1, 2018. This adoption primarily resulted in the reclassification of certain costs from selling, general, and administrative expenses to net sales, which impacted comparability. While it led to a slight decrease in reported gross profit margin, management noted that adjusted gross profit remained strong, and the company provided adjusted figures to offer a clearer view of underlying operational performance.

The acquisition of Entellus Medical for $697 million in February 2018 significantly boosted the Neurotechnology and Spine segment's sales. This acquisition is part of Stryker's strategy to expand its product offerings in minimally invasive treatments for ENT disease states and is expected to contribute to future growth in this segment. The acquisition also led to a substantial increase in cash used for investing activities.

Stryker issued $600 million in senior unsecured notes in March 2018 and repaid $600 million of existing notes in April 2018. The company also continued its share repurchase program and paid dividends. Despite a decrease in cash and cash equivalents due to acquisitions, the company maintained a strong liquidity position with sufficient cash from operations and access to credit facilities.