Press Release details

Kalamazoo, Michigan - April 24, 2013 - Stryker Corporation (NYSE:SYK) reported operating results for the first quarter of 2013:

First Quarter Highlights

• Net sales growth of 1.3% to $2.2 billion 

• Reconstructive increased 1.2% as reported, 2.8% constant currency 

• MedSurg increased 0.3% as reported, 1.0% constant currency 

• Neurotechnology and Spine increased 4.0% as reported, 5.7% constant currency 

• Adjusted net earnings⁽¹⁾ increased 4.0% to $394 million 

• Adjusted diluted net earnings per share⁽²⁾ increased 4.0% to $1.03 

• Reported net earnings decreased 13.1% to $304 million 

• Reported diluted net earnings per share decreased 13.2% to $0.79 

"We delivered solid sales and earnings performance, and expect this momentum to continue throughout 2013," commented Kevin A. Lobo, President and Chief Executive Officer.

Sales Analysis

Consolidated net sales of $2.2 billion increased 1.3% in the quarter compared to the prior year.  Net sales in the quarter grew by 3.8% due to increased unit volume and changes in product mix and 0.2% as a result of acquisitions. Net sales in the quarter were unfavorably impacted by 1.3% due to changes in price and 1.3% due to the unfavorable impact of foreign currency exchange rates on net sales. Excluding the impact of acquisitions, net sales increased 2.5% in constant currency over the prior year.

Reconstructive net sales of $969 million increased 1.2% in the quarter compared to the prior year, as reported, and 2.8% in constant currency.  Net sales in the quarter grew by 5.2% due to increased unit volume and changes in product mix and 0.2% as a result of acquisitions.  Net sales in the quarter were unfavorably impacted by 2.6% due to changes in price and 1.6% due to the unfavorable impact of foreign currency exchange rates on net sales.  Excluding the impact of acquisitions, Reconstructive net sales increased 2.6% in constant currency over the prior year.

MedSurg net sales of $824 million increased 0.3% in the quarter compared to the prior year, as reported, and 1.0% in constant currency.  Net sales in the quarter grew by 0.5% due to increased unit volume and changes in product mix and 0.5% due to changes in price.  Net sales in the quarter were unfavorably impacted by 0.7% due to the impact of foreign currency exchange rates on net sales.  

Neurotechnology and Spine net sales of $397 million increased 4.0% in the quarter compared to the prior year, as reported, and 5.7% in constant currency.  Net sales in the quarter grew by 7.5% due to increased unit volume and changes in product mix and 0.3% as a result of acquisitions.  Net sales in the quarter were unfavorably impacted by  2.0% due to changes in price and 1.8% due to the unfavorable impact of foreign currency exchange rates on net sales.  Excluding the impact of acquisitions, Neurotechnology and Spine net sales increased 5.5% in constant currency over the prior year.

Earnings Analysis

Reported net earnings of $304 million decreased 13.1% in the quarter compared to the prior year.  Diluted net earnings per share of $0.79 decreased 13.2% in the quarter over the prior year.  Reported net earnings in the quarter includes an additional charge of $40 million ($32 million net of tax or $0.08 per diluted share) related to the previously disclosed voluntary recall of the Rejuvenate and ABG II modular-neck hip stems, bringing total charges recorded for this recall to $230 million.  In addition, a charge of $40 million ($30 million net of tax or $0.08 per diluted share) was recorded in the quarter related to two previously disclosed United States regulatory matters.  Reported net earnings in the quarter also includes acquisition and integration related charges of $20 million ($17 million net of taxes or $0.05 per diluted share) related to the Neurovascular, Surpass and Trauson acquisitions and restructuring and related charges of $14 million ($11 million net of taxes or $0.03 per diluted share) . These charges reduced the reported gross profit margin from 67.5% to 67.4% and the reported operating income margin from 22.9% to 17.6%.

Excluding the charges described above, adjusted net earnings⁽¹⁾ of $394 million increased 4.0% in the quarter over the prior year and adjusted diluted net earnings per share⁽²⁾ of $1.03 increased 4.0% in the quarter over the prior year.  Adjusted net earnings⁽¹⁾ in 2013 includes $23 million ($14 million net of taxes or $0.04 per diluted share) of costs associated with the new Medical Device Excise Tax and $17 million of income tax benefits ($0.04 per diluted share) related to the American Taxpayer Relief Act of 2012 that was signed into law on January 2, 2013.

In March 2013, Stryker completed its previously announced acquisition of Trauson Holdings Company Limited (Trauson).  The acquisition of Trauson will expand the Company's presence in a key emerging market with a product portfolio and pipeline that is targeted at the fast growing value segment of the Chinese orthopaedic market.

In March 2013, the Company also completed a public offering of $600 million in 1.30% Notes due April 1, 2018 (2018 Notes) and $400 million in 4.10% Notes due April 1, 2043 (2043 Notes and, together with the 2018 Notes, the Notes).  Interest on the Notes is payable on April 1 and October 1 of each year, commencing on October 1, 2013.  Unless previously redeemed, the 2018 Notes will mature on April 1, 2018 and the 2043 Notes will mature on April 1, 2043.  The Company intends to use the net proceeds from the Notes for working capital and other general corporate purposes, including acquisitions, stock repurchases and other business opportunities.

During the quarter, Stryker repurchased approximately 3.6 million shares.  This repurchase activity was attributable to the initial delivery of shares under the Company's $250 million Accelerated Share Repurchase (ASR) program.   The ASR program was completed in April of 2013 and resulted in the receipt of 0.2 million additional shares.

2013 Outlook

For the full year 2013, Stryker is projecting constant currency sales growth in a range of 4.0% to 6.5%. If foreign currency exchange rates hold near current levels, the Company anticipates net sales will be negatively impacted by approximately 1% to 2% in both the second quarter and full year of 2013.  Excluding the expected impact of foreign currency and acquisitions, projected 2013 sales growth is 3.0% to 5.5% for the full year.

The Company continues to project 2013 adjusted diluted net earnings per share⁽²⁾ to be in a range of $4.25 to $4.40.  

1. A reconciliation of reported net earnings to adjusted net earnings, a non-GAAP financial measure, and other important information, appears below. 

2. A reconciliation of reported diluted net earnings per share to adjusted diluted net earnings per share, a non-GAAP financial measure, and other important information, appears below. 

SUPPLEMENTAL INFORMATION - CONDENSED STATEMENTS OF EARNINGS RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

We supplement the reporting of our financial information determined under GAAP with certain non-GAAP financial measures, including percentage sales growth in constant currency, adjusted net earnings and adjusted diluted net earnings per share. We believe that these non-GAAP measures provide meaningful information to assist investors and shareholders in understanding our financial results and assessing our prospects for future performance. Management believes percentage sales growth in constant currency, adjusted net earnings and adjusted net earnings per diluted share are important indicators of our operations because they exclude items that may not be indicative of or are unrelated to our core operating results and provide a baseline for analyzing trends in our underlying businesses. Management uses these non-GAAP financial measures for reviewing the operating results of reportable business segments, and for analyzing potential future business trends in connection with our budget process and bases certain annual bonus plans on these non-GAAP financial measures. To measure percentage sales growth in constant currency, we remove the impact of changes in foreign currency exchange rates that affect the comparability and trend of sales. Percentage sales growth in constant currency is calculated by translating current year results at prior year average foreign currency exchange rates. To measure earnings performance on a consistent and comparable basis, we exclude certain items that affect the comparability of operating results and the trend of earnings. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for reported sales growth, net earnings and diluted net earnings per share, the most directly comparable GAAP financial measures. These non-GAAP financial measures are an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures below, provide a more complete understanding of our business. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

The following reconciles the non-GAAP financial measures, adjusted net earnings and adjusted diluted net earnings per share, with the most directly comparable GAAP financial measures, reported net earnings and diluted net earnings per share: