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Stryker Corporation (SYK)

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Stryker Corp. (SYK)

Q2 2018 Results Conference Call

July 24, 2018 04:30 PM ET

Executives

Kevin Lobo - Chairman and CEO

Glenn Boehnlein - CFO

Katherine Owen - VP of Strategy and IR

Analysts

David Lewis - Morgan Stanley

Bob Hopkins - Bank of America

Rick Wise - Stifel

Robbie Marcus - JP Morgan

Chris Pasquale - Guggenheim

Vijay Kumar - Evercore ISI

Larry Biegelsen - Wells Fargo

Glenn Novarro - RBC Capital Markets

Isaac Ro - Goldman Sachs

Anthony Petrone - Jefferies

Richard Newitter - Leerink Partners

Craig Bijou - Cantor Fitzgerald

Will Inglis - Piper Jaffray

Joshua Jennings - Cowen

Jeff Johnson - Baird

Brandon Vazquez - Canaccord Genuity

Steven Lichtman - Oppenheimer and Company

Presentation

Operator

Welcome to the Second Quarter 2018 Stryker Earnings Call. My name is Gigi and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Following the conference, we will conduct a question-and-answer session. During that time, participants will have the opportunity to ask one question and one follow-up question. [Operator Instructions] This conference call is being recorded for replay purposes.

Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the Company's most recent filings with the SEC. Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8-K filed today with the SEC.

I will now turn the call over to Mr. Kevin Lobo, Chairman and Chief Executive Officer. You may proceed, sir.

Kevin Lobo

Welcome to Stryker's second quarter earnings call. Joining me today are Glenn Boehnlein, Stryker's CFO and Katherine Owen VP of Strategy and Investor Relations. For today's call I'll provide opening comments, followed by Katherine with an update on Mako. Glenn will then provide additional details regarding our quarterly results before we open the call to Q&A.

Our momentum continued in the second quarter with organic sales growth of roughly 8% which included one extra selling day. Our results were well balanced across businesses and geographies, reflecting the strength of our diversified model. Neurotechnology and Spine led the way with global organic sales growth of 12%, driven by excellent Neurotechnology growth of 16%. We were also encouraged by Spine organic growth of over 5% despite the challenging market backdrop.

MedSurg grew 7% organically with strong instruments performance behind its latest generation power tools, while endoscopy growth slowed owing to tough year-over-year comparisons. Orthopedics organic growth of 7% was once again led by knees and trauma and extremities, Mako momentum continues with over 550 robots installed globally and with high demand we are confident regarding the outlook for continued strong robot sales.

Internationally, emerging markets grew double digits and we had strong performances in Canada, Europe and Japan. Our focus on cost transformation for growth CTG initiatives remain a key priority and is driving meaningful improvement in our operating margin, which increased roughly 50 basis points in the quarter despite acquisition -related dilution.

We continue to make meaningful investments in our product portfolio across the businesses with R&D coming in at 6.5% of sales. These investments coupled with expanding our sales and marketing teams are a key factor behind our top line growth, which remains at the high end of med tech. With a strong organic sales growth and operating margin expansion, we delivered adjusted per share earnings of $1.76, topping our targeted range of $1.70 to a $1.75 for the quarter.

Given our solid first half performance and the outlook for the remainder of the year, we now look for organic sales growth of 7% to 7.5% and adjustment per share earnings of $7.22 to $7.27 a share, despite a less positive outlook on foreign currency. Before I turn the call over to Katherine, I'd like to take a moment to thank David Floyd on his planned retirement from Stryker. David has a long and successful career in orthopedics and has been a tremendous contributor to Stryker's success since joining us nearly six years ago.

With the pending retirements for both David and Lonny Carpenter, we've adopted a new operating model and appointed Tim Scannell to President and Chief Operating Officer. We also pointed Andy Pierce and Spencer Styles to group president roles and names new presidents for instruments and endoscopy, Dillon Cardy and Brent Ladd. As you know, we have many initiatives underway through our CTG program.

With Tim as COO, we expect to drive greater efficiencies and speed of execution. Our new commercial structure will encourage greater collaboration and promote globalization across the Company. We will remain highly decentralized with sales, marketing, R&D and business development which is our proven offence. It is a credit to our focus on talent development to have so many leaders ready to take on greater responsibilities.

For me personally, I'm committed to remaining as CEO of Stryker for many years to come. I believe this structure will allow us to drive exceptional results and continue to drive high growth despite becoming a progressively larger company. As you've seen over the past five years we've consistently outpaced the market and have accelerated sales growth meaningfully, and we plan to continue this momentum through the remainder of this year and beyond.

With that, I will now turn the call over to Katherine.

Katherine Owen

Thanks, Kevin. My comments today will focus on Mako with updates on the key metrics we shared in Q1. In the second quarter, we installed a total of 39 robots globally with 29 in the U.S. compared to a total of 26 in the year ago quarter of which 20 were in the U.S. Upgrades of robots in the field to the total knee application continued and we remain on track to have the majority of robots upgraded by Q3. Over 40% of the robots sold in Q2 were in competitive accounts where Stryker either had no new market share or share well below our average level.

Read the rest of this transcript on seekingalpha.com