Medical technologies major
) is slated to report its second quarter fiscal 2012 results after
the closing bell on Wednesday, July 18. The current Zacks Consensus
Estimate for the second quarter is 98 cents, representing estimated
year-over-year growth of 9.34%.
First Quarter Flashback
Stryker's first-quarter 2012 adjusted earnings per share of 99
cents was in line with the Zacks Consensus Estimate and exceeded
the year-ago earnings of 90 cents a share. The Michigan-based
orthopedic devices major's profit (as reported) jumped 14% to $350
million (or 91 cents a share) in the quarter on the back of
balanced revenues generated across both segments and geography.
Revenues rose 7.2% (up 7.4% in terms of constant currency) year
over year to $2,161 million, beating the Zacks Consensus Estimate
of $2,115 million. Growth was backed by balanced upticks across all
segments, acquisitions and a diverse portfolio of products. These
were partially offset by prices changes and currency
Sales from the company's core Reconstructive unit increased 5.2%
in the quarter to $958 million led by growth in trauma and
extremities franchise. Hips and Knees sales showed signs of
improvement in the quarter but the company expects continued
pricing pressure in this segment.
MedSurg sales increased 7.5% (up 7.9% in constant currency) to
$821 million in the quarter, supported by solid gains from
Sustainability Solutions and the launch of System 7 power tools.
Stryker's Neurotechnology and Spine business soared 12.4% (up 12.3%
in constant currency) to $382 million on the back of acquisitions,
higher unit volume and favorable product mix, which were partially
offset by changes in price.
Estimate Revisions Trend
Estimates for the second quarter demonstrate some amount of
activity over the past week and month. Out of the 22 analysts
covering the stock, 1 made a negative revision over the last 7 days
and 3 in the last 30 days. However, there was 1 upward revision in
the last 7 as well as 30 days.
For the full year, out of the 25 analysts, there were 3 and 6
cases of downward revisions in the last 7 and 30 days,
respectively. There were no instances of upward revision.
Following the downward bias in estimate revisions, the Zacks
Consensus Estimate for the upcoming quarter dropped by a penny from
the previous 7 and 30 days estimates of 99 cents. A flat trend is
witnessed in the estimate for fiscal 2012, which stays at $4.11 a
share over the corresponding periods.
With respect to earnings surprises, Stryker has posted one
positive surprise in the preceding four quarters while it met the
Zacks Consensus Estimate on the other three occasions. The company
has produced an average positive earnings surprise of 2.25% over
the last four quarters, implying that it has beaten the Zacks
Consensus Estimate by that measure. Second quarter earnings are
also expected to meet expectations.
We believe that Stryker is poised for growth powered by a
well-diversified portfolio, new products and acquisitions. The
company is expanding its product range by acquiring complementary
businesses. Stryker was involved in a series of acquisitions in
2011 pressed by sustained pricing and procedure volume pressure in
its core replacement Hips and Knees businesses.
We expect new products including the hip systems, ADM
Restoration and MDM X3 (Modular Dual Mobility) to favorably impact
Stryker's revenues. The ongoing transition from metal-on-metal
(MoM) hip implants to next-generation hip systems represents a
tailwind for the company. While Stryker's knee franchise is still
struggling, the new OtisMed pre-op surgical cutting guides should
rekindle growth in this business.
Stryker has embarked on several restructuring initiatives
(including headcount reduction) in an effort to boost productivity
and neutralize costs associated with the implementation of the new
government-mandated Medical Device Excise Tax (scheduled in 2013).
Moreover, the company remains committed to delivering incremental
returns to investors leveraging a solid balance sheet, healthy free
cash flow and earnings power.
However, Stryker operates in the highly competitive orthopedic
industry and faces strong competition from players like
). Moreover, it remains challenged by the sustained lumpiness in
the reconstructive implant market while pricing and elective
procedure volume still pose headwinds.
The reconstructive market fundamentals remain challenging given
a host of macro issues including high unemployment and expiry of
health insurance. We expect the company to provide some color on
the pricing/volume as well as capital spending trend in its second
quarter commentary. Our Neutral recommendation on Stryker
corresponds to a short-term Zacks #3 Rank (Hold).
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