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Stryker (SYK) Beats Q3 Earnings, Misses Sales Estimates

Maintaining its streak of positive earnings surprises, Stryker CorporationSYK delivered third-quarter 2018 adjusted earnings per share (EPS) of $1.69, which beat the Zacks Consensus Estimate of $1.68. Earnings improved 11.2% year over year and was within the company's guidance.

The Michigan-based medical device company reported revenues of $3.24 billion, missing the Zacks Consensus Estimate of $3.26 billion by a narrow margin. Revenues increased 7.9% on a year-over-year basis.

For investors' notice, in the third quarter, the company adopted the new ASC 606 accounting standard for calculating revenues using the modified retrospective method. Excluding ASC 606 standard, revenues increased 8.8% year over year.

The stock carries a Zacks Rank #3 (Hold).

Revenues by Geography

Revenues in United States came in at $2.38 billion, up 9.1% year over year. International sales rose 4.5% to $861 million.

U.S. organic sales growth was 8.3% and international organic sales improved 7%.Per management, emerging markets grew double digits. The company also recorded solid sales in Australia, Europe and Japan.

Stryker Corporation Price and Consensus

Stryker Corporation Price and Consensus | Stryker Corporation Quote

Segmental Analysis

Stryker reports through three segments - Orthopaedic, MedSurg as well as Neurotechnology & Spine.

Orthopaedic: In the quarter under review, revenues in the segment totaled $1.17 billion, up 3.4% year over year. The segment grew 5% at constant currency (cc).

Per management, the segment saw organic growth of 4.4% on strength in knees business. The company sustains momentum in Mako momentum with 37 robots installed globally in the third quarter.

MedSurg : This segment reported sales worth $1.44 billion, up 8% year over year. Sales increased 10.4%at cc. Per management, the segment grew 8.8% organically in the quarter, led by strong Endoscopy performance. Notably, Endoscopy revenues improved 9.4% year over year. The segment grew 11.9% at cc.

Neurotechnology& Spine: Sales in the segment grossed $628 million, improving 16.7% at cc. Per management, the upside can be attributed to Neurotechnology growth of 18.3% and Spine organic growth of 11.9%.

Margins

In the third quarter, gross profit totaled $2.16 billion, up 8.6% from the year-ago quarter's tally. Gross margin was 66.5%, down 50 basis points (bps).

Operating income totaled $576 million, which climbed 9.7% from the prior-year quarter. Operating margin was 17.8%, up 30 bps.

Guidance

Stryker raised guidance for 2018.

Adjusted EPS are projected in the range of$7.25-$7.30, higher than the previously provided guidance of $7.22 to $7.27. Notably, the Zacks Consensus Estimate for earnings is pegged at $7.25, coinciding with the low end of the guidance.

For 2018, Stryker expects organic net sales growth at the high end ofthe previously provided range of 7-7.5%.

For the fourth quarter of 2018, earnings are projected within $2.13 to $2.18. The consensus mark for earnings is pegged at $1.68, which is below the guidance.

Wrapping Up

Stryker exited the third quarter on a mixed note, with earnings beating the Zacks Consensus Estimate, while revenues missing the same.

The company continues to gain from its flagship Mako Total Knee platform, which drove its core Orthopaedic segment. In fact, the company witnessed solid growth in Mako robot installations in the quarter. Surging domestic sales is a positive. Moreover, solid performance in emerging markets and Europe paints a bright picture. Considerable expansion in operating margin is encouraging as well. Higher R&D expenses indicate increasing focus on innovation.

On the flip side, a declining gross margin raises concern. Total debt on the balance sheet is unchanged from $7.2 billion, which adds to the company's woes. The Trauma & Extremities business had moderate growth and was affected by softness in the market and product supply issues. Stiff competition is likely to mar Stryker's prospects.

Upcoming Releases From the MedTech Industry

A few better-ranked stocks in the MedTech space are Inogen, Inc INGN , Baxter International Inc BAX and Henry Schein, Inc HSIC .

Inogen is expected to release third-quarter fiscal 2018 results on Nov 6. The Zacks Consensus Estimate is pegged at 52 cents for the quarter's adjusted EPS and the same for revenues is pegged at $91.1. The stock flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Baxter is expected to release third-quarter 2018 results on Oct 31. The Zacks Consensus Estimate for the period's adjusted EPS is 74 cents and the same for revenues is pegged at $2.79 billion. The stock carries a Zacks Rank #2.

Henry Schein is slated to release third-quarter 2018 results on Nov 6. The Zacks Consensus Estimate for adjusted EPS is $1.01for the to-be-reported quarter and the same for the top line is pegged at$3.36 billion. The stock carries a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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