Stryker Corp.
(
SYK
), a global medical technology company, reported its first quarter
fiscal 2012 adjusted earnings of 99 cents per share, in line with
the Zacks Consensus Estimate and surpassing the year ago earnings
of 90 cents per share. Adjusted earnings exclude restructuring
expense of $12 million and integration and acquisition-related
expense of $17 million, associated with the takeover of
Neurovascular, Memometal, Concentric and Orthovita.
In the reported quarter, profits climbed 14% year over year to
$350 million (or 91 cents a share).
Revenue
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.
Acquisitions and higher volumes along with better product mix
contributed 2.3% and 6.9%, respectively, to the sales growth.
However, currency rates and fluctuating prices negatively impacted
revenues by 0.2% and 1.7%, respectively.
On a geographic basis, revenues in the U.S. and international
markets rose 8.2% and 5.6% (6.1% in constant currency) to $1,384
million and $777 million, respectively.
Segments Analysis
Revenues from the core Reconstructive business grew 5.2% (both
on reported and constant currency basis) to $958 million. Barring
the impact of acquisitions, revenue from this segment was higher by
3.4% year over year in constant currency.
Within Reconstructive, sales (as reported) from Hips, Knees
along with Trauma and Extremities sub-segments moved up 3.3%, 5.1%
and 9% to $312 million, $352 million and $243 million,
respectively. 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.
Excluding the impact of acquisitions, revenue from MedSurg segment
grew 7.6% year over year in constant currency.
Within MedSurg, Instruments, Endoscopy and Medical sub-divisions
reported a healthy sales growth of 10.2%, 4.1% and 4.7% to $314
million, $279 million and $179 million, respectively. Although the
Medical business posted strong double-digit sales growth in the
international markets, reported sales in the U.S. declined by 1.8%
from the year-ago quarter.
Stryker's Neurotechnology and Spine business soared 12.4% (up
12.3% in constant currency) to $382 million. Barring acquisitions,
sales from this segment increased 4.3% in constant currency.
Sales from the Spine and Neurotechnology sub-segments surged
12.4% and 12.3%, to $181 million and $201 million, respectively.
However, the soft spinal hardware division still continues to
dampen profits generated from the growing Neurovascular, and Neuro,
Interventional Spine, Spine and ENT businesses.
Margins
Gross margin rose to 67.2% in the reported quarter from 65.8% a
year ago. Operating margin increased to 22% from 21% a year ago.
Selling, general and administrative expenses were 37.9% of sales,
roughly flat year over year. Research and Development expenses, as
a percentage of sales, fell slightly to 5.2% from 5.5% in the
year-ago period.
Balance Sheet
Stryker exited the quarter with cash and cash equivalents and
marketable securities of $3,297 million, 14.2% higher than the
previous year. Long-term debt increased 75.7% year over year to
$1,751 million.
The company produced $35 million cash from operations, down
82.8% year over year. In the first quarter, Stryker repurchased
roughly 1 million shares for $50 million.
Guidance
For fiscal 2012, Stryker forecasts revenue to increase in the
range of 3.5% to 6.5% in terms of constant currency. Excluding the
impact of exchange rates and acquisitions, the company expects
revenue to grow in the band of 2% and 5%.
Stryker expects foreign currency (assuming current exchange
rates) to unfavorably impact sales by roughly 1% to 2% in
second-quarter 2012 and full year sales by roughly 0.5% -1.5%.
The company expects adjusted earnings to grow at double-digit
levels for fiscal 2012. It is also expected that acquisitions and
restructuring related charges will dampen reported earnings per
share by roughly 22 cents.
We believe that Stryker is poised for growth powered by new
products, acquisitions and recovery in capital spending by
hospitals. The company is expanding its product portfolio by
acquiring complementary businesses leveraging a solid balance
sheet.
However, Stryker operates in a highly competitive orthopedic
industry and faces strong competition from players like
Zimmer
(
ZMH
),
Johnson & Johnson
's (
JNJ
) DePuy and
Smith & Nephew
(
SNN
). Moreover, despite recent stability, it remains challenged by the
lumpiness in the reconstructive implant market and pricing and
elective procedure volume still remain headwinds. Our long-term
Neutral recommendation on Stryker is in agreement with the
short-term Zacks #2 Rank (Buy).
JOHNSON & JOHNS (
JNJ
): Free Stock Analysis Report
SMITH & NEPHEW (
SNN
): Free Stock Analysis Report
STRYKER CORP (
SYK
): Free Stock Analysis Report
ZIMMER HOLDINGS (
ZMH
): Free Stock Analysis Report
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