Stryker Meets Expectations

By Zacks Equity Research
On 8:29 am EDT, Wednesday October 21, 2009

Stryker Corporation (NYSE: SYK - News) yesterday reported third quarter earnings per share of 69 cents, in line with the Zacks Consensus Estimate and higher than the year-ago earnings of 66 cents. Sales Net sales were flat year over year at approximately $1.7 billion. An unfavorable foreign exchange translation (FX) negatively affected net sales in the quarter.

Symbol	Price	Change
CNMD	21.46	-0.11

JNJ	62.31	+0.37

SNN	47.53	-0.44

SYK	48.73	-0.09

WMGI	18.39	+0.39

Excluding FX, net sales increased 1.2% year over year. On a geographic basis, U.S. sales contributed roughly 65% of total sales and increased 0.2% year over year. International sales declined 0.3% year over year. In terms of business segments: Orthopaedic Implants sales increased 5.5% year over year to $1.0 billion. Growth was contributed by all the products, such as Hips, Knees, Trauma, Spine, and Craniomaxillofacial.

MedSurg Equipment sales declined 7.7% year over year to $637 million. The decline can be primarily attributed to lower capital spending by hospitals due to the current economic turmoil. Margins Gross margin increased 20 basis points (bps) year over year to 67.4% primarily due to a favorable product-mix. Research and development expenses as a percentage of sales declined 50 bps year over year to 5.1%, and were within the company’s target range of 5% to 6%.

Selling, general and administrative expenses as a percentage of sales declined 10 bps year over year to 38.9%. Stryker incurred $67 million of restructuring charges in the reported quarter due to termination of certain third-party general agent agreements in Europe and discontinuation of sales of certain products across both its business segments.

This has primarily resulted in lower operating and net margins in the quarter. Operating margin declined 320 bps year over year to 18.8%. Net margin declined 270 bps year over year to 13.9%. Balance Sheet & Cash Flow Stryker’s cash, cash equivalents and marketable securities totaled approximately $2.9 billion, considerably higher than $2.4 billion recorded in the prior quarter. The company has no outstanding debt at the end of the reported quarter.

Cash flow from operations continued to be strong at $465.8 million, compared to $182.4 million provided in the last quarter. Guidance Stryker provided guidance for the full fiscal 2009. For 2009, earnings per share should be in the range of $2.90 to $3.00. Excluding FX, net sales are expected to increase in between 1% and 2%.

Stryker Corporation is one of the world’s largest medical device companies operating in the global orthopedic market. In the orthopedic space, Stryker faces competition from major players like Zimmer Holdings (NYSE: ZMH - News), Conmed Corporation (NasdaqGS: CNMD - News), Smith & Nephew (NYSE: SNN - News), Johnson & Johnson/DePuy (NYSE: JNJ - News), and Wright Medical (NasdaqGS: WMGI - News).