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Stryker reports first quarter 2019 operating results
Globe Newswire 23-Apr-2019 4:06 PM
Kalamazoo, Michigan, April 23, 2019 (GLOBE NEWSWIRE) -- Stryker (NYSE:SYK) reported operating results for the first quarter of 2019:
First Quarter Highlights
Reported net sales increased 8.5% to $3.5 billion
Organic net sales increased 7.3%
Reported operating income margin of 15.0%
Adjusted operating income margin(1) expanded 10 bps to25.1%
Reported EPS decreased 6.0% to $1.09
Adjusted EPS(1) increased 11.9% to $1.88, exceeding the high end of guidance range
First Quarter Net Sales Growth Overview
Reported
Foreign Currency Exchange
Constant Currency
Acquisitions
Organic
Orthopaedics
2.8
%
(2.3
)%
5.1
%
—
%
5.0
%
MedSurg
8.2
(1.8
)
10.0
1.1
8.9
Neurotechnology and Spine
20.7
(2.5
)
23.2
15.4
7.8
Total
8.5
%
(2.1
)%
10.6
%
3.3
%
7.3
%
"With over 7% organic sales growth in the first quarter, our multi-year momentum continued across our businesses and regions," said Kevin A. Lobo, Chairman and Chief Executive Officer. "We remain committed to providing compelling value to our customers through innovative products and services, both internally developed and acquired, which translate to strong financial results for our shareholders."
Sales Analysis
Consolidated net sales of $3.5 billion increased 8.5% in the quarter and 10.6% in constant currency. Organic net sales increased 7.3% in the quarter including 8.7% from increased unit volume partially offset by 1.4% from lower prices. Orthopaedics net sales of $1.3 billion increased 2.8% in the quarter and 5.1% in constant currency. Organic net sales increased 5.0% in the quarter including 7.1% from increased unit volume partially offset by 2.1% from lower prices. MedSurg net sales of $1.5 billion increased 8.2% in the quarter and 10.0% in constant currency. Organic net sales increased 8.9% in the quarter including 9.9% from increased unit volume partially offset by 1.0% from lower prices. Neurotechnology and Spine net sales of $0.7 billion increased 20.7% in the quarter and 23.2% in constant currency. Organic net sales increased 7.8% in the quarter including 8.9% from increased unit volume partially offset by 1.1% from lower prices.
Earnings Analysis
Reported net earnings of $412 million decreased 7.0% in the quarter. Reported net earnings per diluted share of $1.09 decreased 6.0% in the quarter. Reported gross profit margin and reported operating income margin were 64.9% and 15.0% in the quarter. Adjusted gross profit margin(1) and adjusted operating income margin(1) were 65.8% and 25.1%, an improvement of 10 basis points in the quarter. Adjusted net earnings(1) of $714 million increased 11.9% in the quarter. Adjusted net earnings per diluted share(1) of $1.88 increased 11.9% in the quarter.
2019 Outlook
Based on our first quarter performance we now expect 2019 organic net sales growth to be in the range of 6.8% to 7.5% and expect adjusted net earnings per diluted share(2) to be in the range of $8.05 to $8.20. For the second quarter we expect adjusted net earnings per diluted share(2) to be in the range of $1.90 to $1.95. If foreign currency exchange rates hold near current levels, we expect net sales in the second quarter will be negatively impacted by approximately 1.5% and full year will be negatively impacted by approximately 1.0%, and net earnings per diluted share will be negatively impacted by $0.01 to $0.03 in the second quarter and negatively impacted by $0.05 to $0.10 in the full year.
(1) A reconciliation of the non-GAAP financial measures: adjusted gross profit margin, adjusted operating income and adjusted operating income margin, adjusted net earnings and adjusted net earnings per diluted share, to the most directly comparable GAAP measures: gross profit margin, operating income and operating income margin, net earnings and net earnings per diluted share, and other important information accompanies this press release.
(2) We are unable to present a quantitative reconciliation of our expected net earnings per diluted share to expected adjusted net earnings per diluted share as we are unable to predict with reasonable certainty and without unreasonable effort the impact and timing of restructuring-related and other charges, acquisition-related expenses and fair value adjustments to inventory and the outcome of certain regulatory, legal and tax matters. The financial impact of these items is uncertain and is dependent on various factors, including timing, and could be material to our Consolidated Statements of Earnings.
Conference Call on Tuesday, April 23, 2019
As previously announced, Stryker will host a conference call on Tuesday, April 23, 2019 at 4:30 p.m., Eastern Time, to discuss the Company's operating results for the quarter ended March 31, 2019 and provide an operational update.
To participate in the conference call dial (877) 702-4565 (domestic) or (647) 689-5532 (international) and be prepared to provide conference ID number 4854803 to the operator.
A simultaneous webcast of the call will be accessible via the Company's website at www.stryker.com. The call will be archived on the Investor Relations page of this site.
A recording of the call will also be available from 8:00 p.m., Eastern Time, on Tuesday, April 23, 2019, until 11:59 p.m., Eastern Time, on Tuesday, April 30, 2019. To hear this recording, you may dial (800) 585-8367 (domestic) or (416) 621-4642 (international) and enter conference ID number 4854803.
Caution Concerning Forward-Looking Statements
This press release contains information that includes or is based on forward-looking statements within the meaning of the federal securities laws that are subject to various risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in such statements. Such factors include, but are not limited to: weakening of economic conditions that could adversely affect the level of demand for our products; pricing pressures generally, including cost-containment measures that could adversely affect the price of or demand for our products; changes in foreign exchange markets; legislative and regulatory actions; unanticipated issues arising in connection with clinical studies and otherwise that affect U.S. Food and Drug Administration approval of new products; potential supply disruptions; changes in reimbursement levels from third-party payors; a significant increase in product liability claims; the ultimate total cost with respect to recall-related matters; the impact of investigative and legal proceedings and compliance risks; resolution of tax audits; the impact of the federal legislation to reform the United States healthcare system; costs to comply with medical device regulations; changes in financial markets; changes in the competitive environment; our ability to integrate acquisitions; and our ability to realize anticipated cost savings. Additional information concerning these and other factors is contained in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
Stryker is one of the world's leading medical technology companies and, together with our customers, we are driven to make healthcare better. The Company offers innovative products and services in Orthopaedics, Medical and Surgical, and Neurotechnology and Spine that help improve patient and hospital outcomes. More information is available at www.stryker.com.
For investor inquiries please contact:
Katherine A. Owen, Vice President, Strategy & Investor Relations at 269-385-2600 or katherine.owen@stryker.com
For media inquiries please contact:
Yin Becker, Vice President, Communications, Public Affairs and Corporate Marketing at 269-385-2600 or yin.becker@stryker.com
STRYKER CORPORATION
For the Three Months March 31
(Unaudited - Millions of Dollars, Except Per Share Amounts)
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months
2019
2018
% Change
Net sales
$
3,516
$
3,241
8.5
%
Cost of sales
1,233
1,104
11.7
Gross profit
$
2,283
$
2,137
6.8
%
% of sales
64.9
%
65.9
%
Research, development and engineering expenses
225
204
10.3
Selling, general and administrative expenses
1,403
1,236
13.5
Recall charges
13
4
225.0
Amortization of intangible assets
114
102
11.8
Total operating expenses
$
1,755
$
1,546
13.5
%
Operating income
$
528
$
591
(10.7
)%
% of sales
15.0
%
18.2
%
Other income (expense), net
(48
)
(49
)
(2.0
)
Earnings before income taxes
$
480
$
542
(11.4
)%
Income taxes
68
99
(31.3
)
Net earnings
$
412
$
443
(7.0
)%
Net earnings per share of common stock:
Basic
$
1.10
$
1.18
(6.8
)%
Diluted
$
1.09
$
1.16
(6.0
)%
Weighted-average shares outstanding (in millions):
Basic
373.3
374.0
Diluted
379.3
380.7
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31
December 31
2019
2018
Assets
Cash and cash equivalents
$
1,674
$
3,616
Marketable securities
84
83
Accounts receivable, net
2,284
2,332
Inventories
3,064
2,955
Prepaid expenses and other current assets
782
747
Total current assets
$
7,888
$
9,733
Property, plant and equipment, net
2,297
2,291
Goodwill and other intangibles, net
12,950
12,726
Noncurrent deferred income tax assets
1,631
1,678
Other noncurrent assets
1,171
801
Total assets
$
25,937
$
27,229
Liabilities and shareholders' equity
Current liabilities
$
3,713
$
4,807
Long-term debt, excluding current maturities
7,950
8,486
Income taxes
1,218
1,228
Other noncurrent liabilities
1,363
978
Shareholders' equity
11,693
11,730
Total liabilities and shareholders' equity
$
25,937
$
27,229
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months
2019
2018
Operating activities
Net earnings
$
412
$
443
Depreciation
76
74
Amortization of intangible assets
114
102
Changes in operating assets and liabilities and other, net
(289
)
(322
)
Net cash provided by operating activities
$
313
$
297
Investing activities
Acquisitions, net of cash acquired
$
(180
)
$
(704
)
Change in marketable securities, net
(1
)
(24
)
Purchases of property, plant and equipment
(122
)
(121
)
Net cash used in investing activities
$
(303
)
$
(849
)
Financing activities
(Payments) borrowings of debt, net
$
(1,353
)
$
694
Dividends paid
(195
)
(176
)
Repurchases of common stock
(307
)
(300
)
Other financing, net
(92
)
(73
)
Net cash (used in) provided by financing activities
$
(1,947
)
$
145
Effect of exchange rate changes on cash and cash equivalents
(5
)
44
Change in cash and cash equivalents
$
(1,942
)
$
(363
)
STRYKER CORPORATION
For the Three Months March 31
(Unaudited - Millions of Dollars)
SALES GROWTH ANALYSIS
Three Months
Percentage Change
2019
2018
As Reported
Constant Currency
Geographic:
United States
$
2,579
$
2,314
11.5
%
11.5
%
International
937
927
1.1
8.3
Total
$
3,516
$
3,241
8.5
%
10.6
%
Segment:
Orthopaedics
$
1,250
$
1,216
2.8
%
5.1
%
MedSurg
1,544
1,427
8.2
10.0
Neurotechnology and Spine
722
598
20.7
23.2
Total
$
3,516
$
3,241
8.5
%
10.6
%
SUPPLEMENTAL SALES GROWTH ANALYSIS
Three Months
United States
International
Percentage Change
2019
2018
As Reported
Constant Currency
As Reported
As Reported
Constant Currency
Orthopaedics:
Knees
$
439
$
419
4.9
%
7.0
%
6.6
%
0.5
%
8.1
%
Hips
336
331
1.5
4.1
4.0
(2.4
)
4.4
Trauma and Extremities
396
389
1.7
4.1
3.4
(1.2
)
5.4
Other
79
77
2.1
3.5
(0.3
)
12.5
21.4
$
1,250
$
1,216
2.8
%
5.1
%
4.4
%
(0.6
)%
6.5
%
MedSurg:
Instruments
$
478
$
412
16.1
%
18.0
%
20.6
%
1.2
%
8.9
%
Endoscopy
470
444
5.7
7.5
7.5
(1.0
)
7.5
Medical
531
511
4.0
5.8
9.2
(11.2
)
(4.6
)
Sustainability
65
60
9.0
9.0
8.4
117.6
128.2
$
1,544
$
1,427
8.2
%
10.0
%
11.9
%
(4.4
)%
3.1
%
Neurotechnology and Spine:
Neurotechnology
$
465
$
410
13.6
%
16.1
%
16.0
%
9.5
%
16.2
%
Spine
257
188
36.3
38.6
40.9
23.6
32.0
$
722
$
598
20.7
%
23.2
%
24.7
%
12.9
%
20.1
%
Total
$
3,516
$
3,241
8.5
%
10.6
%
11.5
%
1.1
%
8.3
%
SUPPLEMENTAL INFORMATION - RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
We supplement the reporting of our financial information determined under accounting principles generally accepted in the United States (GAAP) with certain non-GAAP financial measures, including: percentage sales growth; percentage sales growth in constant currency; percentage organic sales growth; adjusted gross profit; adjusted selling, general and administrative expenses; adjusted operating income; adjusted effective income tax rate; adjusted net earnings; and adjusted net earnings per diluted share (Diluted EPS). We believe that these non-GAAP financial measures provide meaningful information to assist investors and shareholders in understanding our financial results and assessing our prospects for future performance. Management believes percentage sales growth in constant currency and the other adjusted measures described above are important indicators of our operations because they exclude items that may not be indicative of or are unrelated to our core operating results and provide a baseline for analyzing trends in our underlying businesses. Management uses these non-GAAP financial measures for reviewing the operating results of reportable business segments and analyzing potential future business trends in connection with our budget process and bases certain management incentive compensation on these non-GAAP financial measures.
To measure percentage sales growth in constant currency, we remove the impact of changes in foreign currency exchange rates that affect the comparability and trend of sales. Percentage sales growth in constant currency is calculated by translating current and prior year results at the same foreign currency exchange rate. To measure percentage organic sales growth, we remove the impact of changes in foreign currency exchange rates and acquisitions, which affect the comparability and trend of sales. Percentage organic sales growth is calculated by translating current year results at prior year average foreign currency exchange rates excluding the impact of acquisitions. To measure earnings performance on a consistent and comparable basis, we exclude certain items that affect the comparability of operating results and the trend of earnings.
Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for reported sales growth, gross profit, selling, general and administrative expenses, operating income, effective income tax rate, net earnings and net earnings per diluted share, the most directly comparable GAAP financial measures. These non-GAAP financial measures are an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures below, provide a more complete understanding of our business. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
The following reconciles the non-GAAP financial measures discussed above with the most directly comparable GAAP financial measures. The weighted-average diluted shares outstanding used in the calculation of non-GAAP earnings per share are the same as those used in the calculation of reported earnings per share for the respective period.
STRYKER CORPORATION
For the Three Months March 31
(Unaudited - Millions of Dollars, Except Per Share Amounts)
Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
Three Months 2019
Gross Profit
Selling, General & Administrative Expenses
Amortization of Intangible Assets
Operating Income
Net Earnings
Effective Tax Rate
Diluted EPS
Reported
$
2,283
$
1,403
$
114
$
528
$
412
14.2
%
$
1.09
Reported percent net sales
64.9
%
39.9
%
3.2
%
15.0
%
11.7
%
Acquisition and integration-related charges (a)
Inventory stepped-up to fair value
24
—
—
24
19
0.3
0.05
Other acquisition and integration-related
—
(114
)
—
114
88
2.0
0.23
Amortization of purchased intangible assets
—
—
(114
)
114
91
1.3
0.24
Restructuring-related and other charges (b)
5
(52
)
—
56
50
(0.3
)
0.13
Medical device regulations (c)
—
—
—
7
6
0.1
0.01
Recall-related matters (d)
—
—
—
13
10
0.3
0.03
Regulatory and legal matters (e)
—
(25
)
—
25
19
0.4
0.05
Tax matters (f)
—
—
—
—
19
(3.9
)
0.05
Adjusted
$
2,312
$
1,212
$
—
$
881
$
714
14.4
%
$
1.88
Adjusted percent net sales
65.8
%
34.5
%
—
%
25.1
%
20.3
%
Three Months 2018
Gross Profit
Selling, General & Administrative Expenses
Amortization of Intangible Assets
Operating Income
Net Earnings
Effective Tax Rate
Diluted EPS
Reported
$
2,137
$
1,236
$
102
$
591
$
443
18.3
%
$
1.16
Reported percent net sales
65.9
%
38.1
%
3.1
%
18.2
%
13.7
%
Acquisition and integration-related charges (a)
Inventory stepped-up to fair value
6
—
—
6
4
0.2
0.01
Other acquisition and integration-related
—
(11
)
—
11
9
—
0.02
Amortization of purchased intangible assets
—
—
(102
)
102
83
0.4
0.22
Restructuring-related and other charges (b)
5
(58
)
—
63
50
0.5
0.13
Medical device regulations (c)
1
—
—
1
1
—
—
Recall-related matters (d)
—
—
—
4
3
0.1
0.01
Regulatory and legal matters (e)
—
(32
)
—
32
24
0.5
0.07
Tax matters (f)
—
—
—
—
21
(3.9
)
0.06
Adjusted
$
2,149
$
1,135
$
—
$
810
$
638
16.1
%
$
1.68
Adjusted percent net sales
66.3
%
35.0
%
—
%
25.0
%
19.7
%
(a)
Charges represent certain acquisition and integration-related costs associated with acquisitions.
(b)
Charges represent the costs associated with certain restructuring-related activities associated with workforce reductions and other restructuring-related activities.
(c)
Charges represent the costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with the medical device reporting regulations and other requirements of the new medical device regulations in the European Union and China.
(d)
Charges represent changes in our best estimate of the minimum end of the range of probable loss to resolve certain recall-related matters.
(e)
Our best estimate of the minimum of the range of probable loss to resolve certain regulatory or other legal matters and the amount of favorable awards from settlements.
(f)
Benefits and charges represent the accounting impact of certain significant and discrete tax items, including adjustments related to the Tax Cuts and Jobs Act of 2017, and the transfer of certain intellectual properties between tax jurisdictions.
