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Stryker Reports Third Quarter 2012 Results


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  • Sales of $2.1 billion, growth of 1.0%   

  • Adjusted diluted net earnings per share(1) of $0.97, growth of 6.6% 

  • Adjusted diluted net earnings per share full year guidance revised to a range of $4.04 to $4.07 per share for 2012 and $4.25 to $4.40 for 2013 

Kalamazoo, Michigan - October 17, 2012 - Stryker Corporation (NYSE:SYK) reported operating results for the third quarter of 2012 with net sales of $2.1 billion, up 1.0% and adjusted diluted net earnings per share(1) of $0.97, an increase of 6.6%.

"Our third quarter results reflect solid performance for most of our U.S. franchises, however, this was partly offset by weaker results from key countries outside the U.S. and our capital businesses," commented Kevin A. Lobo, President and Chief Executive Officer. "We expect market conditions to remain challenging in Europe and for capital equipment, and as a result we are lowering our earnings outlook for 2012 and 2013. This will ensure that Stryker makes the necessary investments to strengthen its position as a market leader while continuing to deliver leveraged earnings gains."

Sales Analysis

Consolidated net sales of $2.1 billion increased 1.0% in the quarter over the prior year, as reported, and 2.9% in constant currency. Net sales in the quarter grew by 3.4% due to increased unit volume and changes in product mix and 0.4% as a result of acquisitions. These increases were partially offset by an unfavorable impact of 0.9% due to changes in price and 1.9% due to the unfavorable impact of foreign currency exchange rates on net sales. Excluding the impact of acquisitions, net sales increased 2.5% in constant currency over the prior year.

Reconstructive net sales of $891 million decreased 1.1% in the quarter over the prior year, as reported, and increased 1.1% in constant currency. Net sales in the quarter grew by 2.4% due to increased unit volume and changes in product mix and 0.1% as a result of acquisitions. These increases were partially offset by an unfavorable impact of 1.4% due to changes in price and 2.2% due to the unfavorable impact of foreign currency exchange rates on net sales. Excluding the impact of acquisitions, Reconstructive net sales increased 1.0% in constant currency over the prior year.

MedSurg net sales of $781 million increased 1.7% in the quarter over the prior year, as reported, and 3.1% in constant currency. Net sales in the quarter grew by 3.3% due to increased unit volume and changes in product mix. This increase was partially offset by an unfavorable impact of 0.2% due to changes in price and 1.4% due to the unfavorable impact of foreign currency exchange rates on net sales.

Neurotechnology and Spine net sales of $380 million increased 4.7% in the quarter over the prior year, as reported, and 6.9% in constant currency. Net sales in the quarter grew by 6.0% due to increased unit volume and changes in product mix and 2.1% as a result of acquisitions. These increases were partially offset by an unfavorable impact of 1.3% due to changes in price and 2.2% due to the unfavorable impact of foreign currency exchange rates on net sales. Excluding the impact of acquisitions, Neurotechnology and Spine net sales increased 4.7% in constant currency over the prior year.

Earnings Analysis

Reported net earnings in the quarter include restructuring and related charges of $11 million (net of taxes), and acquisition and integration related charges of $6 million (net of taxes) related to acquisitions completed in 2011. These charges reduced reported gross profit margin from 68.2% to 68.1% and reported operating income margin from 22.9% to 21.9%.

Excluding the charges described above, adjusted net earnings(2) of $370 million increased 5.1% in the quarter over the prior year. Adjusted diluted net earnings per share(1) of $0.97 increased 6.6% in the quarter over the prior year.

Net earnings of $353 million increased 8.0% in the quarter over the prior year. Diluted net earnings per share of $0.92 increased 9.5% in the quarter over the prior year.

During the quarter, Stryker repurchased approximately 0.4 million shares at a cost of $19 million.

Outlook

The financial forecast for 2012 includes a constant currency sales increase of 4% to 5.5%.  If foreign currency exchange rates hold near current levels, we anticipate net sales will be negatively impacted by approximately 0% to 1.0% in the fourth quarter of 2012 and negatively impacted by approximately 0.5% to 1.5% for the full year of 2012.  Excluding the impact of acquisitions, sales growth is projected to be 2.5% to 4% in constant currency over the prior year.

The company now projects 2012 adjusted diluted net earnings per share to be in the range of $4.04 to $4.07, an increase of 9% over adjusted diluted net earnings per share of $3.72 in the prior year. The company also projects 2013 adjusted diluted net earnings per share to be in the range of $4.25 to $4.40.  

  1. A reconciliation of reported diluted net earnings per share to adjusted diluted net earnings per share, a non-GAAP financial measure, and other important information, appears below. 

  2. A reconciliation of reported diluted net earnings to adjusted diluted net earnings, a non-GAAP financial measure, and other important information, appears below. 

Conference Call on Wednesday, October 17, 2012

As previously announced, the Company will host a conference call for financial analysts at 4:30 p.m., Eastern Time, today to discuss the Company's operating results for the quarter ended September 30, 2012 and provide an operational update.

To participate in the conference call dial 866-713-8563 (domestic) or 617-597-5311 (international) and enter the participant passcode 52175809. A simultaneous webcast of the call will be accessible via the Company's website at www.stryker.com. The call will be archived on this site for 90 days.

A recording of the call will also be available from 6:30 p.m., Eastern Time, on Wednesday, October 17, 2012, until 5:00 p.m. on Wednesday, October 24, 2012. To hear this recording, dial 888-286-8010 (domestic) or 617-801-6888 (international) and enter the passcode 71065825.

Forward-Looking Statements

This press release contains information that includes or is based on forward-looking statements within the meaning of the federal securities law 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; changes in reimbursement levels from third-party payors; a significant increase in product liability claims; the impact of investigative and legal proceedings and compliance risks; resolution of tax audits; changes in financial markets; changes in the competitive environment; our ability to integrate acquisitions; and our ability to realize anticipated cost savings as a result of workforce reductions and other restructuring activities. Additional information concerning these and other factors are 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 is dedicated to helping healthcare professionals perform their jobs more efficiently while enhancing patient care. We offer a diverse array of innovative medical technologies, including reconstructive, medical and surgical, and neurotechnology and spine products to help people lead more active and more satisfying lives. For more information about Stryker, please visit www.stryker.com.

For investor inquiries please contact:
Katherine A. Owen, Stryker Corporation, 269-385-2600 or katherine.owen@stryker.com

STRYKER CORPORATION
(Unaudited - Millions of Dollars, Except Per Share Amounts)
CONDENSED STATEMENTS OF EARNINGS
Third Quarter Nine Months
2012 2011 % Change 2012 2011 % Change
Net sales $ 2,052 $ 2,031 1.0 $ 6,319 $ 6,092 3.7
Cost of sales 655 669 (2.1 ) 2,036 2,071 (1.7 )
GROSS PROFIT 1,397 1,362 2.6 4,283 4,021 6.5
% of sales 68.1 % 67.1 % 67.8 % 66.0 %
Research, development & engineering expenses 114 122 (6.6 ) 342 347 (1.4 )
Selling general & administrative expenses 791 765 3.4 2,433 2,316 5.1
Intangibles amortization 30 31 (3.2 ) 92 90 2.2
Restructuring charges 12 - - 45 - -
947 918 3.2 2,912 2,753 5.8
OPERATING INCOME 450 444 1.4 1,371 1,268 8.1
% of sales 21.9 % 21.9 % 21.7 % 20.8 %
Other income (expense) (6 ) (13 ) (53.8 ) (24 ) (15 ) 60.0
EARNINGS BEFORE INCOME TAXES 444 431 3.0 1,347 1,253 7.5
Income Taxes 91 104 (12.5 ) 319 309 3.2
NET EARNINGS $ 353 $ 327 8.0 $ 1,028 $ 944 8.9
Net earnings per share
Basic 0.93 0.85 9.4 2.70 2.43 11.1
Diluted 0.92 0.84 9.5 2.68 2.41 11.2
Average shares outstanding
Basic 380.2 386.0 380.7 388.1
Diluted 382.5 388.4 383.2 391.5

CONDENSED BALANCE SHEETS
September December
2012 2011
ASSETS
Cash and cash equivalents $ 1,423 $ 905
Marketable securities 2,440 2,513
Accounts receivable (net) 1,356 1,417
Inventories 1,315 1,283
Other current assets 1,106 1,093
TOTAL CURRENT ASSETS 7,640 7,211
Property, plant and equipment (net) 929 888
Goodwill and other intangibles (net) 3,402 3,514
Other assets 806 792
TOTAL ASSETS $ 12,777 $ 12,405
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities 1,576 1,828
Other liabilities 1,089 1,143
Long-term debt 1,751 1,751
Shareholders' equity 8,361 7,683
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,777 $ 12,405

CONDENSED STATEMENTS OF CASH FLOWS
Third Quarter Nine Months
2012 2011 2012 2011
OPERATING ACTIVITIES
Net earnings $ 353 $ 327 $ 1,028 $ 944
Depreciation 38 40 115 119
Amortization 82 84 249 240
Restructuring charges 12 - 45 -
Changes in operating assets and liabilities and other, net 84 (5 ) (376 ) (496 )
NET CASH PROVIDED BY OPERATING ACTIVITIES 569 446 1,061 807
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (37 ) (144 ) (47 ) (1,922 )
Proceeds from sales of property, plant and equipment - 1 - 67
Proceeds from sales of (purchases of) marketable securities, net (333 ) (297 ) 41 262
Purchases of property, plant and equipment (58 ) (57 ) (161 ) (162 )
NET CASH USED IN INVESTING ACTIVITIES (428 ) (497 ) (167 ) (1,755 )
FINANCING ACTIVITIES
Borrowings (repayments) of debt, net 1 764 2 746
Dividends paid (81 ) (70 ) (243 ) (210 )
Repurchase and retirement of common stock (19 ) (289 ) (108 ) (539 )
Other (11 ) (17 ) (37 ) (19 )
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (110 ) 388 (386 ) (22 )
Effect of exchange rate changes on cash and cash equivalents (1 ) (24 ) 10 22
CHANGE IN CASH AND CASH EQUIVALENTS $ 30 $ 313 $ 518 $ (948 )
STRYKER CORPORATION
For the Three Month and Nine Month Periods Ended September 30, 2012
(Unaudited - Millions of Dollars)

CONDENSED SALES ANALYSIS
Third Quarter Nine Months
% Change % Change
2012 2011 As Reported Constant Currency 2012 2011 As Reported Constant Currency
Geographic sales
U.S. $ 1,360 $ 1,298 4.7 4.7 $ 4,128 $ 3,862 6.9 6.9
International 692 733 (5.6 ) (0.4 ) 2,191 2,230 (1.8 ) 2.0
NET SALES $ 2,052 $ 2,031 1.0 2.9 $ 6,319 $ 6,092 3.7 5.1
Worldwide sales
Reconstructive $ 891 $ 901 (1.1 ) 1.1 $ 2,776 $ 2,729 1.8 3.3
MedSurg 781 767 1.7 3.1 2,388 2,303 3.6 4.8
Neurotechnology and Spine 380 363 4.7 6.9 1,155 1,060 9.0 10.5
NET SALES $ 2,052 $ 2,031 1.0 2.9 $ 6,319 $ 6,092 3.7 5.1

SUPPLEMENTAL SALES GROWTH ANALYSIS
Third Quarter
% Change
U.S. International
2012 2011 As Reported Constant Currency As Reported As Reported Constant Currency
Reconstructive
Hips $ 288 $ 300 (3.9 ) (2.1 ) 1.6 (9.6 ) (5.9 )
Knees 315 311 1.4 3.0 4.5 (4.3 ) 0.4
Trauma and Extremities 235 236 (0.7 ) 2.7 10.5 (10.6 ) (4.2 )
TOTAL RECONSTRUCTIVE 891 901 (1.1 ) 1.1 5.3 (8.9 ) (4.1 )
MedSurg
Instruments 303 294 3.0 4.6 6.2 (5.3 ) 0.3
Endoscopy 259 257 1.1 2.7 1.1 1.2 6.5
Medical 169 171 (1.3 ) (0.1 ) (6.7 ) 24.7 31.9
TOTAL MEDSURG 781 767 1.7 3.1 1.7 1.9 7.6
Neurotechnology and Spine
Spine 175 179 (1.6 ) 0.1 1.8 (9.0 ) (3.7 )
Neurotechnology 205 184 10.8 13.5 23.1 (3.7 ) 2.1
TOTAL NEUROTECHNOLOGY AND SPINE 380 363 4.7 6.9 11.3 (5.8 ) (0.2 )

Nine Months
% Change
U.S. International
2012 2011 As Reported Constant Currency As Reported As Reported Constant Currency
Reconstructive
Hips $ 908 $ 914 (0.7 ) 0.6 4.5 (5.9 ) (3.3 )
Knees 996 975 2.2 3.4 4.9 (2.7 ) 0.7
Trauma and Extremities 711 678 4.8 7.1 14.9 (3.6 ) 0.7
TOTAL RECONSTRUCTIVE 2,776 2,729 1.8 3.3 7.5 (5.1 ) (1.7 )
MedSurg
Instruments 931 868 7.2 8.5 10.5 (0.6 ) 3.7
Endoscopy 802 788 1.8 3.0 1.0 3.6 7.9
Medical 506 522 (3.2 ) (2.2 ) (7.4 ) 16.1 21.3
TOTAL MEDSURG 2,388 2,303 3.6 4.8 3.6 3.8 8.2
Neurotechnology and Spine
Spine 537 509 5.6 6.7 8.9 (1.8 ) 1.9
Neurotechnology 618 551 12.1 13.9 20.6 1.9 5.9
TOTAL NEUROTECHNOLOGY AND SPINE 1,155 1,060 9.0 10.5 14.3 0.5 4.3

SUPPLEMENTAL INFORMATION - CONDENSED STATEMENTS OF EARNINGS
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

We supplement the reporting of our financial information determined under GAAP with certain non-GAAP financial measures, including percentage sales growth in constant currency, adjusted net earnings and adjusted diluted net earnings per share. We believe that these non-GAAP 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, adjusted net earnings and adjusted net earnings per diluted share 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 for analyzing potential future business trends in connection with our budget process and bases certain annual bonus plans 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 year results at prior year average foreign currency exchange rates. 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, net earnings and diluted net earnings per 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, adjusted net earnings and adjusted diluted net earnings per share, with the most directly comparable GAAP financial measures, reported net earnings and diluted net earnings per share:

STRYKER CORPORATION
For the Three Month and Nine Month Periods Ended September 30, 2012
(Unaudited - Millions of Dollars, Except Per Share Amounts)

RECONCILIATION OF NET EARNINGS TO ADJUSTED NET EARNINGS
Third Quarter Nine Months
Notes 2012 2011 % Change 2012 2011 % Change
NET EARNINGS $ 353 $ 327 8.0 $ 1,028 $ 944 8.9
Acquisition and integration related charges, net of tax (a)
Inventory "step up" to fair value - 12 (100.0 ) 11 85 (87.1 )
Acquisition and integration related 6 13 (53.8 ) 17 29 (41.4 )
Restructuring and related charges (b) 11 - - 35 - -
OtisKnee matter (c) - - - 33 - -
ADJUSTED NET EARNINGS $ 370 $ 352 5.1 $ 1,124 $ 1,058 6.2

RECONCILIATION OF DILUTED NET EARNINGS PER SHARE TO ADJUSTED DILUTED NET EARNINGS PER SHARE
Third Quarter Nine Months
Notes 2012 2011 % Change 2012 2011 % Change
DILUTED NET EARNINGS PER SHARE $ 0.92 $ 0.84 9.5 $ 2.68 $ 2.41 11.2
Acquisition and integration related charges, net of tax (a)
Inventory "step up" to fair value - 0.03 (100.0 ) 0.03 0.22 (86.4 )
Acquisition and integration related 0.02 0.03 (33.3 ) 0.04 0.07 (42.9 )
Restructuring and related charges (b) 0.03 - - 0.09 - -
OtisKnee matter (c) - - - 0.09 - -
ADJUSTED DILUTED NET EARNINGS PER SHARE $ 0.97 $ 0.91 6.6 $ 2.93 $ 2.70 8.5

(a) In 2011 the Company completed the acquisition of the Neurovascular division of Boston Scientific Corporation, Orthovita, Inc., Memometal Technologies S.A., and Concentric Medical, Inc., and has incurred certain acquisition and integration related charges.
(b) In 2011 the Company announced focused workforce reductions and other restructuring activities and has incurred and will continue to incur certain restructuring and related charges.
(c) In 2011 the Company announced entering into discussions with the DOJ regarding the settlement of the allegations of violations of Federal laws related to sales of the OtisKnee device not cleared by the United States Food and Drug Administration. We recorded a non-tax deductible charge representing our best estimate of the minimum of the range of probable loss to resolve this matter.

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