Stryker reports 2017 results and 2018 outlook

Stryker Corporation reported 2017 operating results for the fourth quarter and full year and 2018 outlook:

Fourth Quarter Highlights

  • Net sales grew 10.0% to $3.5 billion (8.7% constant currency)
  • Orthopaedics 8.1 % or 6.8 % constant currency
  • MedSurg 10.9 % or 9.8 % constant currency
  • Neurotechnology and Spine 11.5 % or 10.3 % constant currency

Reported net earnings per diluted share decreased 149.3% to a net loss per diluted share of $0.66
Adjusted net earnings per diluted share(1) increased 10.1% to $1.96

Full Year Highlights

  • Net sales grew 9.9% to $12.4 billion (9.8% constant currency)
  • Orthopaedics 6.6 % or 6.5 % constant currency
  • MedSurg 13.6 % or 13.4 % constant currency
  • Neurotechnology and Spine 8.2 % or 8.3 % constant currency

Reported net earnings per diluted share decreased 38.4% to $2.68
Adjusted net earnings per diluted share(1) increased 11.9% to $6.49

“As pre-announced, we delivered excellent organic sales growth of over 8% in the fourth quarter, capping off a strong year for Stryker,” said Kevin A. Lobo, Chairman and Chief Executive Officer. “We expect our positive momentum to continue in 2018 with another year of strong organic sales growth and leveraged adjusted earnings gains.”

Sales Analysis

Consolidated net sales of $3.5 billion and $12.4 billion increased 10.0% and 9.9% as reported in the quarter and full year and 8.7% and 9.8% in constant currency, as foreign currency exchange rates positively impacted net sales by 1.2% and 0.1%. Excluding the 0.7% and 2.7% impact of acquisitions, net sales increased 8.1% and 7.1% in constant currency, including 9.1% and 8.2% from increased unit volumes partially offset by 1.0% and 1.1% in lower prices.

Orthopaedics net sales of $1.3 billion and $4.7 billion increased 8.1% and 6.6% as reported in the quarter and full year and 6.8% and 6.5% in constant currency, as foreign currency exchange rates positively impacted net sales by 1.3% and 0.1%. There was no impact of acquisitions in the quarter and 0.3% impact of acquisitions in the full year. Net sales increased 6.8% and 6.2% excluding acquisitions and in constant currency, including 9.3% and 8.6% from increased unit volumes partially offset by 2.5% and 2.4% in lower prices.

MedSurg net sales of $1.6 billion and $5.6 billion increased 10.9% and 13.6% as reported in the quarter and full year and 9.8% and 13.4% in constant currency, as foreign currency exchange rates positively impacted net sales by 1.1% and 0.2%. Excluding the 1.3% and 5.6% impact of acquisitions, net sales increased 8.5% and 7.8% in constant currency, including 8.0% and 7.5% from increased unit volumes and 0.5% and 0.2% from higher prices.

Neurotechnology and Spine net sales of $0.6 billion and $2.2 billion increased 11.5% and 8.2% as reported in the quarter and full year and 10.3% and 8.3% in constant currency, as foreign currency exchange rates positively impacted net sales by 1.2% in the quarter and nominally for the full year. Excluding the 0.4% and 0.7% impact of acquisitions, net sales increased 10.0% and 7.6% in constant currency, including 11.7% and 9.1% from increased unit volumes partially offset by 1.7% and 1.5% in lower prices.

Earnings Analysis

Reported net earnings decreased 148.9% in the quarter to a net loss of $249 million and reported net earnings decreased 38.1% to $1,020 million in the full year. Reported net earnings per diluted share decreased 149.3% in the quarter to a net loss per diluted share of $0.66 and reported net earnings per diluted share decreased 38.4% to $2.68 in the full year. Reported net earnings includes charges for the impact of the Tax Cuts and Jobs Act of 2017, amortization of purchased intangible assets, restructuring-related activities, Rejuvenate and ABG II recall, and acquisition and integration related activities. The effect of each of these matters on reported net earnings and net earnings per diluted share appears in the reconciliation of actual results to adjusted results. Excluding the impact of these charges increases gross profit margin in the quarter from 64.5% to 66.4% and for the full year from 65.7% to 66.3% and increases operating income margin in the quarter from 20.5% to 27.0% and for the full year from 18.4% to 25.2%.

Excluding the impact of the items described above, adjusted net earnings(2) of $746 million and $2,465 million increased 10.5% and 12.3%, in the quarter and full year. Adjusted net earnings per diluted share(1) of $1.96 and $6.49 increased 10.1% and 11.9% in the quarter and full year.

Stryker reports 2017 results and 2018 outlook

We expect 2018 organic sales growth to be in the range of 6.0% to 6.5%. For 2018, we will adopt ASU 2014-09 Revenue from Contracts with Customers, which impacts the timing of revenue recognition and requires the presentation of certain costs previously reported as selling expenses as a reduction of revenue, both of which are not anticipated to be material. The reclassification of selling costs will result in a reduction of net sales, but has no impact on operating income or net earnings. We expect adjusted net earnings per diluted share(3) to be in the range of $1.57 to $1.62 in the first quarter and $7.07 to $7.17 in the full year. If foreign currency exchange rates hold near current levels, we expect net sales to be favorably impacted by approximately 1.0% for the full year. When considered along with our hedging program, we expect modest favorability in net earnings per diluted share in the first quarter and full year.

(1) A reconciliation of reported net earnings per diluted share to adjusted net earnings per diluted share, a non-GAAP financial measure, and other important information appears below.
(2) A reconciliation of reported net earnings to adjusted net earnings, a non-GAAP financial measure, and other important information appears below.
(3) A reconciliation of expected net earnings per diluted share to expected adjusted net earnings per diluted share for the first quarter and full year and other important information appears below.

Conference Call on Tuesday, January 30, 2018

As previously announced, Stryker will host a conference call on Tuesday, January 30, 2018 at 4:30 p.m., Eastern Time, to discuss the Company’s operating results for the quarter and year ended December 31, 2017 and provide an operational update.

To participate in the conference call dial (844) 826-0610 (domestic) or (973) 453-3249 (international) and be prepared to provide confirmation number 2788919 to the operator.

A simultaneous webcast of the call will be accessible via the Company’s website at www.stryker.com. The call will be archived on the Investors page of this site.

A recording of the call will also be available from 8:00 p.m., Eastern Time, on Tuesday, January 30, 2018, until 11:59 p.m., Eastern Time, on Tuesday, February 6, 2018. To hear this recording you may dial (855) 859-2056 (domestic) or (404) 537-3406 (international) and enter conference ID number 2788919.