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Stryker Corporation (SYK)

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Stryker Corp. (SYK)

Q1 2019 Earnings Conference Call

April 23, 2019 16:30 ET

Corporate Participants

Kevin Lobo - Chairman & Chief Executive Officer

Glenn Boehnlein - Chief Financial Officer

Katherine Owen - Vice President of Strategy & Investor Relations

Conference Call Participants

Bob Hopkins - Bank of America

David Lewis - Morgan Stanley

Vijay Kumar - Evercore ISI

Richard Newitter - SVB Leerink

Kristen Stewart - Barclays

Robbie Marcus - JPMorgan

Shagun Singh - Wells Fargo

Chris Pasquale - Guggenheim

Pito Chickering - Deutsche Bank

Craig Bijou - Cantor Fitzgerald

Matt Taylor - UBS

William Inglis - Piper Jaffray

Larry Keusch - Raymond James

Vic Huang - Credit Suisse

Kyle Rose - Canaccord Genuity

Jeff Johnson - Baird

Steven Lichtman - Oppenheimer

Presentation

Operator

Welcome to the First Quarter 2019 Stryker Earnings Call. My name is Jesse and I'll 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. [Operator Instructions] This conference call is being recorded for replay purposes.

Before we begin, I would like to remind you that the discussions during the conference call today 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. There 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 first quarter earnings call. Joining me today are Glenn Boehnlein, Stryker's CFO and Katherine Owen, Vice President of Strategy and Investor Relations.

For today's call, I'll provide opening comments followed by Katherine with updates on Mako and K2M. Glenn will then provide additional details regarding our quarterly results before we open the call to Q&A.

Following an excellent 2018, our Q1 results reflect continued momentum across our three segments with over 7% organic sales growth. This growth was balanced between U.S. and international at roughly 7% each with particularly robust gains in emerging markets and Europe.

By segment MedSurg led the way with 9% worldwide organic growth driven by impressive mid teens organic growth at instruments. Orthopedics grew 5% globally with knees growing 7% behind Mako and hips gaining 4% benefiting from the recent 3D printed acetabular cup launch. NeuroTech and spine had worldwide organic growth of 8% as NeuroTechs double-digit growth powered by neurovascular was offset by low single-digit spine growth.

Turning to the P&L adjusted operating margin improved by 10 basis points despite absorbing significant deal-related dilution. With the strong top-line and continued progress with our cost transformation for growth initiatives, we remain on track to achieve our full year target of 30 to 50 basis points of operating margin expansion. We continue to effectively integrate acquisitions and also make meaningful investments in R&D which ensures a steady cadence of new product introductions such as endoscopy recently launched 1688 camera.

Overall driven by the sales growth at the high-end of Medtech, we achieved adjusted per share earnings of $1.88 up 12%. Looking ahead to the full year we are confident in sustaining this momentum and in our ability to deliver on our commitments to our customers, employees and shareholders. This is reflected in our adjusted guidance which raises the bottom end of both our full year organic sales growth and adjusted EPS ranges. With that I will now turn the call over to Katherine.

Katherine Owen

Thanks Kevin.

Starting with Mako, we installed a total of 35 robots globally in the quarter with 27 in the U.S. by comparison in the comparable quarter a year ago. We installed a total of 28 robots of which 24 were in the U.S. Globally our installed base of robots is approaching 700 with over 550 in the U.S. Looking at U.S. procedures in Q1 Mako total knee procedures exceeded 15,000 increasing over 80% from the prior year quarter while total makeup procedures approximated 24,000. These results indicate we are continuing to build on the momentum we saw in 2018 where total Mako knee procedures for the year topped 45,000.

With a continued healthy order book, we anticipate strong robot sales in 2019 at hospital and surgeon interest in robotic programs for orthopedics continues to increase. We also expect to continue to build on the clinical data that demonstrates the unique benefits of the Mako technology.

Turning to K2M, we are pleased with the continued progress on the integration front. With the organizational structure in place, we are building inventory to help support cross training for our combined selling organization. On a combined constant currency basis, our sales grew 2% in the quarter and we anticipate a continued sequential ramp in sales for the full year and we are on track to achieve combined fine sales growth in the mid single digits for 2019. With that, I'll now turn the call over to Glenn.

Glenn Boehnlein

Thanks Katherine.

Today I will focus my comments on our first quarter financial results and the related drivers. Our detailed financial results have been provided in today's press release.

Our organic sales growth was 7.3% in the quarter, as a reminder this quarter included the same number of selling days as Q1 2018. Pricing in the quarter was unfavorable 1.4% from the prior quarter. While foreign currency had an unfavorable 2.1% impact on sales. For the quarter, U.S. sales continue to demonstrate strong momentum with organic growth of 7.4% reflecting solid performances across our portfolio. International sales grew 6.9% organically which was balanced across the regions.

Read the rest of this transcript on seekingalpha.com