Stryker reports 2018 results and 2019 outlook

Kalamazoo, Michigan, Jan. 29, 2019 (GLOBE NEWSWIRE) — Stryker (NYSE:SYK) reported operating results for the fourth quarter and full year of 2018 and 2019 outlook:

Fourth Quarter Highlights

•       Reported net sales increased 9.4% to $3.8 billion

• Organic net sales increased 8.6%
• Reported operating income margin of 18.4%
• Adjusted operating income margin⁽¹⁾ expanded 50 bps (30 bps excluding ASC 606⁽²⁾) to 27.5%
• Reported EPS increased 924.2% to $5.44
• Adjusted EPS⁽³⁾ increased 11.2% to $2.18, at the high end of guidance range

Full Year Highlights

•       Reported net sales increased 9.3% to $13.6 billion

• Organic net sales increased 7.9%
• Reported operating income margin of 18.7%
• Adjusted operating income margin⁽¹⁾ expanded 70 bps (40 bps excluding ASC 606⁽²⁾) to 25.9%
• Reported EPS increased 248.5% to $9.34
• Adjusted EPS⁽³⁾ increased 12.6% to $7.31, exceeding the high end of guidance range

“We had an excellent finish to 2018 with the best organic sales growth in a decade, and strong adjusted earnings performance,” said Kevin A. Lobo, Chairman and Chief Executive Officer. “Our multi-year momentum reflects the strength of our diversified model, progress on globalization and outstanding people and culture. We are well positioned to deliver for our customers, employees and shareholders in 2019 and beyond.”

Sales Analysis (percentages exclude ASC 606⁽²⁾ adoption impact)

Consolidated net sales of $3.8 billion and $13.6 billion increased 10.1% and 10.2% in the quarter and full year and 11.3% and 9.8% in constant currency. Organic net sales increased 8.6% and 7.9% in the quarter and full year including 10.1% and 9.3% from increased unit volume partially offset by 1.5% and 1.4% from lower prices.

Orthopaedics net sales of $1.4 billion and $5.0 billion increased 5.9% and 6.4% in the quarter and full year and 7.0% and 5.9% in constant currency. Organic net sales increased 7.0% and 5.9% in the quarter and full year including 8.9% and 8.1% from increased unit volume partially offset by 1.9% and 2.2% from lower prices.

MedSurg net sales of $1.7 billion and $6.0 billion increased 9.9% and 10.1% in the quarter and full year and 11.1% and 10.0% in constant currency. Organic net sales increased 10.1% and 8.6% in the quarter and full year including 11.3% and 9.3% from increased unit volume partially offset by 1.2% and 0.7% from lower prices.

Neurotechnology and Spine net sales of $0.7 billion and $2.6 billion increased 20.1% and 18.6% in the quarter and full year and 21.4% and 18.0% in constant currency. Organic net sales increased 8.4% and 10.6% in the quarter and full year including 10.2% and 12.2% from increased unit volume partially offset by 1.8% and 1.6% from lower prices.

Earnings Analysis

Reported net earnings of $2.1 billion and $3.6 billion increased 930.5% and 248.3% in the quarter and full year. Reported net earnings per diluted share of $5.44 and $9.34 increased 924.2% and 248.5% in the quarter and full year. Reported net earnings include certain items, such as charges for acquisition and integration-related activities, the amortization of purchased intangible assets, restructuring-related and other charges, costs to comply with certain medical device regulations, the Rejuvenate recall and other recall-related matters, regulatory and legal matters and tax matters. In the quarter the transfer of certain intellectual properties between tax jurisdictions resulted in a $1.5 billion non-cash tax benefit and a corresponding $1.5 billion deferred tax asset.  The benefit of the transaction will be realized as a reduction of cash paid for taxes over a period of nine years and a corresponding charge to tax expense, which consistent with the benefit recognized in the quarter will also be adjusted out of reported net earnings going forward in our non-GAAP financial measure. The effect of each of these matters on reported net earnings and net earnings per diluted share appear in the reconciliation of GAAP to non-GAAP financial measures. Excluding the aforementioned items increases gross profit margin from 64.7% to 65.6% in the quarter and for the full year from 65.7% to 66.0% and increases operating income margin in the quarter from 18.4% to 27.5%⁽¹⁾ and for the full year from 18.7% to 25.9% including a 20 basis point favorable impact related to the adoption of the new revenue recognition standard⁽²⁾. Excluding the impact of the items described above, adjusted net earnings⁽⁴⁾ of $0.8 billion and $2.8 billion increased 11.0% and 12.7% in the quarter and full year. Adjusted net earnings per diluted share⁽³⁾ of $2.18 and $7.31 increased 11.2% and 12.6% in the quarter and full year.

2019 Outlook

We expect 2019 organic net sales growth to be in the range of 6.5% to 7.5% and expect adjusted net earnings per diluted share⁽⁵⁾ to be in the range of $8.00 to $8.20. We expect adjusted net earnings per diluted share⁽⁵⁾ to be in the range of $1.80 to $1.85 in the first quarter.

(1) A reconciliation of operating income to adjusted operating income, a non-GAAP financial measure, and other important information accompanies this press release.

(2) Consistent with previous press releases and financial disclosures, we adopted Accounting Standards Update 2014-09, Revenue From Contracts with Customers, as well as related amendments (ASC 606), issued by the Financial Accounting Standards Board on a modified retrospective basis, effective January 1, 2018. The impact of the adoption of ASC 606 related primarily to the reclassification of certain costs previously presented as selling, general and administrative expenses to net sales.

(3) 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 accompanies this press release.

(4) A reconciliation of reported net earnings to adjusted net earnings, a non-GAAP financial measure, and other important information accompanies this press release.

(5) We are unable to present a quantitative reconciliation of our expected net earnings per diluted share to expected adjusted net earnings per diluted share as we are unable to predict with reasonable certainty and without unreasonable effort the impact and timing of restructuring-related and other charges, acquisition-related expenses and fair value adjustments to inventory and the outcome of certain regulatory, legal and tax matters. The financial impact of these items is uncertain and is dependent upon various factors, including timing, and could be material to our Consolidated Statements of Earnings.

Conference Call on Tuesday, January 29, 2019

As previously announced, Stryker will host a conference call on Tuesday, January 29, 2019 at 4:30 p.m., Eastern Time, to discuss the Company’s operating results for the quarter and year ended December 31, 2018 and provide an operational update.

To participate in the conference call dial (866) 393-4306 (domestic) or (734) 385-2616 (international) and be prepared to provide confirmation number 5365367 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 Investor Relations page of this site.

A recording of the call will also be available from 8:00 p.m., Eastern Time, on Tuesday, January 29, 2019, until 11:59 p.m., Eastern Time, on Tuesday, February 5, 2019. To hear this recording you may dial (855) 859-2056 (domestic) or (404) 537-3406 (international) and enter conference ID number 5365367.

Caution Concerning Forward-Looking Statements

This press release contains information that includes or is based on forward-looking statements within the meaning of the federal securities laws that are subject to various risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in such statements. Such factors include, but are not limited to: weakening of economic conditions that could adversely affect the level of demand for our products; pricing pressures generally, including cost-containment measures that could adversely affect the price of or demand for our products; changes in foreign exchange markets; legislative and regulatory actions; unanticipated issues arising in connection with clinical studies and otherwise that affect U.S. Food and Drug Administration approval of new products; potential supply disruptions; changes in reimbursement levels from third-party payors; a significant increase in product liability claims; the ultimate total cost with respect to the Rejuvenate recall and other recall-related matters; the impact of investigative and legal proceedings and compliance risks; resolution of tax audits; the impact of the federal legislation to reform the United States healthcare system; costs to comply with medical device regulations; changes in financial markets; changes in the competitive environment; our ability to integrate acquisitions; and our ability to realize anticipated cost savings. Additional information concerning these and other factors is contained in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

Stryker is one of the world’s leading medical technology companies and, together with its customers, is driven to make healthcare better. The company offers innovative products and services in Orthopaedics, Medical and Surgical, and Neurotechnology and Spine that help improve patient and hospital outcomes. More information is available at www.stryker.com.

For investor inquiries please contact:
Katherine A. Owen, Vice President, Strategy and Investor Relations at 269-385-2600 or katherine.owen@stryker.com

For media inquiries please contact:
Yin Becker, Vice President, Communications, Public Affairs and Corporate Marketing at 269-385-2600 or yin.becker@stryker.com

SUPPLEMENTAL INFORMATION – RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

We supplement the reporting of our financial information determined under accounting principles generally accepted in the United States (GAAP) with certain non-GAAP financial measures, including: percentage sales growth excluding the impact of the adoption of ASC 606; percentage sales growth in constant currency; percentage sales growth in constant currency and excluding the impact of the adoption of ASC 606; percentage organic sales growth; adjusted gross profit; adjusted selling, general and administrative expenses; adjusted operating income; adjusted effective income tax rate; adjusted net earnings; and adjusted net earnings per diluted share (Diluted EPS). We believe that these non-GAAP financial 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 and the other adjusted measures described above 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 analyzing potential future business trends in connection with our budget process and bases certain management incentive compensation 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 and prior year results at the same foreign currency exchange rate and excludes the impact of the adoption of ASC 606. To measure percentage organic sales growth, we remove the impact of changes in foreign currency exchange rates, acquisitions and the impact of the adoption of ASC 606, which affect the comparability and trend of sales. Percentage organic sales growth is calculated by translating current year results at prior year average foreign currency exchange rates excluding the impact of acquisitions and the adoption of ASC 606. 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, gross profit, selling, general and administrative expenses, operating income, effective income tax rate, net earnings and net earnings per diluted 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 discussed above with the most directly comparable GAAP financial measures. The weighted-average diluted shares outstanding used in the calculation of non-GAAP earnings per share are the same as those used in the calculation of reported earnings per share for the respective period.