Orthopedic devices major,
) has pre-announced its fourth-quarter and full year 2012 results
and provided its outlook for 2013. The company will report its
financial results on Jan 23, after market closes.
Sales Growth Exceeds Guidance
According to the Michigan-based company, revenues for the fourth
quarter increased 5.5% (6.1% on a constant currency basis and
excluding acquisitions) year over year to $2.3 billion,
essentially in line with the Zacks Consensus Estimate. For the
full year, revenues grew 4.2% (4.2% in constant currency and
excluding acquisitions) to $8.7 billion, also matching the Zacks
Consensus Estimate. The constant currency 2012 revenue growth
surpassed the company's guidance of 2.5%-4.0%.
As per the preliminary results, revenues from Stryker's core
Reconstructive unit, offering replacement hip, knees and
extremities products, rose 7.4% and 4.4% in constant currency in
the fourth quarter and full year 2012, respectively. The
fourth-quarter results show improvement from 1.1% constant
currency revenue growth achieved in the previous quarter, which
points to an improving reconstructive market fundamentals.
The MedSurg business continues its healthy run with revenues
growing 2.7% and 4.2% in constant currency in the fourth quarter
and full year 2012, respectively. Neurotechnology and Spine
revenues jumped 10.8% and 10.5% in constant currency in the
fourth quarter and full year 2012, respectively.
Stryker did not repurchase any shares in the fourth quarter, and
ended 2012 with a total repurchase of 2.1 million shares worth
2012 Outlook Upgraded
Stryker has raised the bottom end of its adjusted earnings
guidance for full year 2012 to between $4.05 and $4.07 a share
from $4.04-$4.07, earlier. The revised guidance represents
8.9%-9.4% annualized growth. The current Zacks Consensus Estimate
for 2012 earnings is $4.06 a share.
However, management announced that the Rejuvenate and ABG II hip
products recall in June 2012 has resulted in a fourth-quarter
charge of $174 million before taxes ($133 million net of taxes)
or 35 cents per share. However, this is regarded as a one-time
expense by the company and is excluded from the adjusted earnings
per share. Stryker expects total expenses of $190 million to $390
million for patient testing and treatment, lawsuits and insurance
payments related to the product recall.
Stryker expects charges associated with the acquisition and
integration to dilute its 2012 earnings per share by roughly 9
cents. The company expects to record a charge of roughly 15 cents
in connection with its restructuring moves in 2012. Further, an
issue involving the U.S. Department of Justice and related to the
sales and marketing of OtisKnee has resulted in a non-tax
deductible charge of 9 cents per share in the year.
Stryker has divulged its outlook for 2013. Revenues are expected
to grow 3.0%-5.5% in constant currency. The company expects
foreign currency (assuming current exchange rates) to unfavorably
impact sales by roughly flat to 1% in the first quarter as well
as full year 2013.
After accounting for the $100 million pre-tax annualized impact
from the Med-Tech excise tax, Stryker expects adjusted earnings
in the range of $4.25-$4.40 a share for 2013. The current Zacks
Consensus Estimate of $4.32 for the year is within the provided
Further, the company highlighted certain factors, which are
expected to affect both the top as well as bottom-line growth in
2013. Fewer selling days in the first quarter compared with the
year-ago quarter, price reductions in Japan in April 2012, the
Neptune product recall and the income tax adjustments in 2012 are
expected to impact results in 2013. Based on the above mentioned
factors, adjusted earnings are expected to grow 23%, 24%, 24% and
29% in each of the four quarters of 2013, respectively.
Neutral on Stryker
Stryker carries a short-term Zacks Rank #3 (Hold) and
consequently we have a Neutral recommendation on the stock. The
company, with a market-cap of $22.4 billion, is one of the
world's largest medical device manufacturers operating in the
global orthopedic market.
The company's well-diversified product portfolio along with
acquisitions are expected to drive future growth. Moreover, the
company remains committed to delivering incremental returns to
investors, reflected in the recent 25% hike in dividends and the
$1 billion worth of share repurchase program.
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However, Stryker faces several challenges, which include
continued soft international sales and tough hospital capital
budgets. Moreover, despite the recent stability in the domestic
market, it remains challenged by currency fluctuations and
pricing pressure. Additionally, Stryker operates in the highly
competitive orthopedic industry and faces strong competition from
Zimmer Holdings Inc.