Stryker earnings drop 48.8% in 2014…but is an acquisition looming? 12 key points

Spinal Tech

Stryker's 2014 earnings were down and missed expectations, but Chairman and CEO Kevin Lobo isn't panicking yet.

Instead, he's banking on sales growth for continued enthusiasm in the company. "We delivered another strong quarter of sales growth and expected this to continue into 2015," he said. "This growth, combined with ongoing operational improvements and strong balance sheet, position us well for the future."

 

Here are 10 key points on Stryker's fourth quarter and full year financial report:

 

1. Earnings were down 32.6 percent in the fourth quarter and 48.8 percent in the full year. The net earnings hit $260 million in the fourth quarter and $515 million for the full year.

 

2. The net earnings were impacted by:

 

• Recalls for Rejuvenate, ABG II and Neptune
• Tax impacts related to establishing the European regional headquarters
• Planned cash repatriation
• Acquisition- and integration-related charges
• Costs of sales for inventory sold that was "stepped up" to fair value related to acquisitions
• Restructuring and related changes
• Regulatory and legal matters changes

 

3. Full-year net sales grew 7.3 percent to $9.7 billion in 2014. The service line breakdown was:

 

• Orthopedics: 5.2 percent
• Medsurg: 10.8 percent
• Nanotechnology and spine: 5 percent

 

The foreign currency exchange rates negatively impacted net sales growth across the board.

 

4. The company expects 2015 constant currency sales to grow 5.5 percent to 7 percent, including organic sales growth around 4.5 percent to 6 percent.

 

5. Adjusted diluted net earnings per share are expected in the range of $1.05 to $1.10 in the first quarter and $4.90 to $5.10 in the full year.

 

6. In the United States, fourth quarter sales were up 11.1 percent, but international sales were down 3.8 percent. Mr. Lobo remains bullish on growth prospects in China and India.

 

7. The company acquired MAKO Surgical in late 2013 and sold 20 robots in the fourth quarter of 2014. This is considerably higher than eight in the prior quarter. MAKO procedure volume also increased double-digits year-over-year, according to the earnings report transcript in Seeking Alpha.

 

8. Stryker submitted the 510-K application for the total knee replacement with the MAKO robot and expects to gain FDA clearance this year. The revenue from MAKO is expected to be limited in 2015, but "we expect to see a more meaningful ramp in 2016," said VP of Strategy and IR Katherine Owen.

 

This year the company also plans to release the cementless uni-knee procedure on the robot as well as Stryker's hip power brands for the robot.

 

9. Operating costs were down 140 basis points year-over-year while research and development increased in absolute dollars and as a percentage of sales. According to Mr. Lobo, these results underscore "our ongoing commitment to innovation, both internal development and acquisitions, the benefits of which are apparent in our topline performance."

 

10. Orthopedics was 42 percent of the company's sales. Trauma and extremities, added by the Small Bone Innovations acquisition last year, grew around 18 percent. Nanotechnology and spine represents 18 percent of the company's sales.

 

11. At the end of the quarter, Stryker had $4 billion of debt on the balance sheet.

 

12. There could be additional mergers and acquisitions in the future. Mr. Lobo said while he wouldn't comment on any specific deal that might be in the mix, "every time there is an acquisition in the space, there is disruption…We saw disruption and many of our competitors as well as us were able to capitalize on that. I think with the upcoming mergers in the environment, there will be disruptions. We haven't seen it yet. I think once the acquisition happens, you will see some sort of disruption. We plan for that ourselves and we do acquisitions."

 

Copyright © 2024 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.

 

Featured Webinars

Featured Podcast

Featured Whitepapers