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Stryker reports third quarter 2020 operating results

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Kalamazoo, Michigan, Oct. 29, 2020 (GLOBE NEWSWIRE) -- Stryker (NYSE:SYK) reported operating results for the third quarter of 2020:

The response to the COVID-19 pandemic has included unprecedented measures to slow the spread of the virus taken by local governments and health care authorities globally, including the postponement of deferrable medical procedures and social contact restrictions, which have had a significant negative impact on our operations and financial results.

Third Quarter Results

  • Reported net sales increased 4.2% to $3.7 billion

  • Organic net sales increased 3.3%

  • Reported operating income margin of 23.0%

  • Adjusted operating income margin(1) expanded 260 bps to 28.0%

  • Reported EPS increased 32.5% to $1.63

  • Adjusted EPS(1) increased 12.0% to $2.14

Third Quarter Net Sales Growth Overview

Reported

Foreign Currency Exchange

Constant Currency

Acquisitions

Organic

Orthopaedics

4.4

%

0.6

%

3.8

%

%

3.8

%

MedSurg

3.2

0.3

2.9

0.4

2.5

Neurotechnology and Spine

6.0

0.5

5.5

1.2

4.3

Total

4.2

%

0.4

%

3.8

%

0.5

%

3.3

%

"We are pleased to have returned to growth in the third quarter and delivered strong adjusted earnings and cash flow in a challenging environment," said Kevin A. Lobo, Chairman and Chief Executive Officer. "Our teams executed well in serving our customers, advancing innovations and preparing for the Wright Medical integration."

Sales Analysis

Consolidated net sales of $3.7 billion increased 4.2% in the quarter and 3.8% in constant currency. Organic net sales increased 3.3% in the quarter including 4.7% from increased unit volume partially offset by 1.4% from lower prices.

Orthopaedics net sales of $1.3 billion increased 4.4% in the quarter and 3.8% in constant currency. Organic net sales increased 3.8% in the quarter including 5.9% from increased unit volume partially offset by 2.1% from lower prices.

MedSurg net sales of $1.6 billion increased 3.2% in the quarter and 2.9% in constant currency. Organic net sales increased 2.5% in the quarter including 3.1% from increased unit volume partially offset by 0.6% from lower prices.

Neurotechnology and Spine net sales of $0.8 billion increased 6.0% in the quarter and 5.5% in constant currency. Organic net sales increased 4.3% in the quarter including 6.0% from increased unit volume partially offset by 1.7% from lower prices.

Earnings Analysis

Despite the negative impacts of the global response to the COVID-19 pandemic, reported net earnings of $621 million increased 33.3% in the quarter. Reported net earnings per diluted share of $1.63 increased 32.5% in the quarter. Reported gross profit margin and reported operating income margin were 65.9% and 23.0% in the quarter. Adjusted gross profit margin(1) and adjusted operating income margin(1) were 65.9% and 28.0%, an improvement of 260 basis points in the quarter. Adjusted net earnings(1) of $812 million increased 12.0% in the quarter. Adjusted net earnings per diluted share(1) of $2.14 increased 12.0% in the quarter.

2020 Outlook

While we are still recovering from the impacts of the COVID-19 pandemic, most of our businesses reported overall increased unit volume during the third quarter. However, due to the uncertain scope and duration of the pandemic, and uncertain timing of global recovery and economic normalization, we are unable to estimate the overall impacts on our operations and financial results, which could be material. Accordingly, we will not be providing fourth quarter or full-year organic sales growth or earnings guidance for 2020.

(1) A reconciliation of the non-GAAP financial measures: adjusted gross profit margin, adjusted operating income and adjusted operating income margin, adjusted net earnings and adjusted net earnings per diluted share, to the most directly comparable GAAP measures: gross profit margin, operating income and operating income margin, net earnings and net earnings per diluted share, and other important information accompanies this press release.


Conference Call on October 29, 2020

As previously announced, Stryker will host a conference call on Thursday, October 29, 2020 at 4:30 p.m., Eastern Time, to discuss the Company's operating results for the quarter ended September 30, 2020 and provide an operational update.

To participate in the conference call dial (877) 702-4565 (domestic) or (647) 689-5532 (international) and be prepared to provide conference ID number 5297589 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 Thursday, October 29, 2020, until 11:59 p.m., Eastern Time, on Thursday, November 5, 2020. To hear this recording, you may dial (800) 585-8367 (domestic) or (416) 621-4642 (international) and enter conference ID number 5297589.


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: the impact on our operations and financial results of the COVID-19 pandemic and any related policies and actions by governments or other third parties; the failure to satisfy any of the closing conditions to the acquisition of Wright Medical Group N.V. ("Wright"), including the receipt of any required regulatory clearances (and the risk that such clearances may result in the imposition of conditions that could adversely affect the expected benefits of the transaction); timing of the closing of the acquisition of Wright; unexpected liabilities, costs, charges or expenses in connection with the acquisition of Wright; the effects of the proposed Wright transaction (or the announcement thereof) on the parties' relationships with employees, customers, other business partners or governmental entities; 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, including Wright 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 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 and realize the anticipated benefits of acquisitions in full or at all or within the expected timeframes, including the acquisition of Wright; 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. We disclaim any intention or obligation to publicly update or revise any forward-looking statement to reflect any change in our expectations or in events, conditions or circumstances on which those expectations may be based, or that affect the likelihood that actual results will differ from those contained in the forward-looking statements.

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:

Preston Wells, Vice President, Investor Relations at 269-385-2600 or preston.wells@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


STRYKER CORPORATION

For the Three and Nine Months September 30

(Unaudited - Millions of Dollars, Except Per Share Amounts)

CONSOLIDATED STATEMENTS OF EARNINGS

Three Months

Nine Months

2020

2019

% Change

2020

2019

% Change

Net sales

$

3,737

$

3,587

4.2

%

$

10,089

$

10,753

(6.2

)

%

Cost of sales

1,276

1,257

1.5

3,749

3,760

(0.3

)

Gross profit

$

2,461

$

2,330

5.6

%

$

6,340

$

6,993

(9.3

)

%

% of sales

65.9

%

65.0

%

62.8

%

65.0

%

Research, development and engineering expenses

242

246

(1.6

)

729

717

1.7

Selling, general and administrative expenses

1,244

1,291

(3.6

)

3,799

3,976

(4.5

)

Recall charges

2

49

(95.9

)

(4

)

179

nm

Amortization of intangible assets

114

116

(1.7

)

342

352

(2.8

)

Total operating expenses

$

1,602

$

1,702

(5.9

)

%

$

4,866

$

5,224

(6.9

)

%

Operating income

$

859

$

628

36.8

%

$

1,474

$

1,769

(16.7

)

%

% of sales

23.0

%

17.5

%

14.6

%

16.5

%

Other income (expense), net

(79

)

(47

)

68.1

(191

)

(143

)

33.6

Earnings before income taxes

$

780

$

581

34.3

%

$

1,283

$

1,626

(21.1

)

%

Income taxes

159

115

38.3

252

268

(6.0

)

Net earnings

$

621

$

466

33.3

%

$

1,031

$

1,358

(24.1

)

%

Net earnings per share of common stock:

Basic

$

1.66

$

1.24

33.9

%

$

2.75

$

3.63

(24.2

)

%

Diluted

$

1.63

$

1.23

32.5

%

$

2.71

$

3.58

(24.3

)

%

Weighted-average shares outstanding (in millions):

Basic

375.7

374.2

375.3

373.8

Diluted

380.2

380.3

380.0

379.8


CONDENSED CONSOLIDATED BALANCE SHEETS

September 30

December 31

2020

2019

Assets

Cash and cash equivalents

$

7,083

$

4,337

Marketable securities

78

88

Accounts receivable, net

2,426

2,893

Inventories

3,459

3,282

Prepaid expenses and other current assets

499

760

Total current assets

$

13,545

$

11,360

Property, plant and equipment, net

2,529

2,567

Goodwill and other intangibles, net

13,045

13,296

Noncurrent deferred income tax assets

1,627

1,575

Other noncurrent assets

1,540

1,369

Total assets

$

32,286

$

30,167

Liabilities and shareholders' equity

Current liabilities

$

4,689

$

4,400

Long-term debt, excluding current maturities

12,008

10,231

Income taxes

999

1,068

Other noncurrent liabilities

1,604

1,661

Shareholders' equity

12,986

12,807

Total liabilities and shareholders' equity

$

32,286

$

30,167


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months

2020

2019

Operating activities

Net earnings

$

1,031

$

1,358

Depreciation

247

231

Amortization of intangible assets

342

352

Changes in operating assets, liabilities, income taxes payable and other, net

420

(485

)

Net cash provided by operating activities

$

2,040

$

1,456

Investing activities

Acquisitions, net of cash acquired

$

(26

)

$

(281

)

Change in marketable securities, net

10

(5

)

Purchases of property, plant and equipment

(322

)

(450

)

Other investing, net

(11

)

Net cash used in investing activities

$

(349

)

$

(736

)

Financing activities

Borrowings (payments) of debt, net

$

1,796

$

(1,348

)

Dividends paid

(647

)

(585

)

Repurchases of common stock

(307

)

Other financing, net

(103

)

(120

)

Net cash provided by (used in) financing activities

$

1,046

$

(2,360

)

Effect of exchange rate changes on cash and cash equivalents

9

(28

)

Change in cash and cash equivalents

$

2,746

$

(1,668

)

nm - not meaningful


STRYKER CORPORATION

For the Three and Nine Months September 30

(Unaudited - Millions of Dollars)


SALES GROWTH ANALYSIS

Three Months

Nine Months

Percentage Change

Percentage Change

2020

2019

As Reported

Constant
Currency

2020

2019

As Reported

Constant
Currency

Geographic:

United States

$

2,748

$

2,644

3.9

%

3.9

%

$

7,357

$

7,918

(7.1

)

%

(7.1

)

%

International

989

943

5.0

3.3

2,732

2,835

(3.6

)

(2.1

)

Total

$

3,737

$

3,587

4.2

%

3.8

%

$

10,089

$

10,753

(6.2

)

%

(5.8

)

%

Segment:

Orthopaedics

$

1,317

$

1,262

4.4

%

3.8

%

$

3,433

$

3,785

(9.3

)

%

(9.0

)

%

MedSurg

1,600

1,552

3.2

2.9

4,546

4,680

(2.9

)

(2.4

)

Neurotechnology and Spine

820

773

6.0

5.5

2,110

2,288

(7.8

)

(7.4

)

Total

$

3,737

$

3,587

4.2

%

3.8

%

$

10,089

$

10,753

(6.2

)

%

(5.8

)

%


SUPPLEMENTAL SALES GROWTH ANALYSIS

Three Months

United States

International

Percentage Change

2020

2019

As Reported

Constant Currency

As Reported

As Reported

Constant Currency

Orthopaedics:

Knees

$

435

$

426

2.2

%

1.7

%

4.6

%

(4.8

)

%

(6.9

)

%

Hips

334

332

0.4

(0.1

)

5.3

(8.2

)

(9.7

)

Trauma and Extremities

430

407

5.6

4.7

9.0

(0.5

)

(3.0

)

Other

118

97

22.5

22.2

20.0

34.9

33.0

$

1,317

$

1,262

4.4

%

3.8

%

7.5

%

(2.6

)

%

(4.7

)

%

MedSurg:

Instruments

$

467

$

452

3.4

%

3.1

%

3.1

%

4.7

%

2.9

%

Endoscopy

467

474

(1.3

)

(1.5

)

1.0

(10.1

)

(11.0

)

Medical

600

554

8.3

8.0

3.0

29.0

27.8

Sustainability

66

72

(8.7

)

(8.7

)

(8.9

)

nm

nm

$

1,600

$

1,552

3.2

%

2.9

%

1.7

%

8.9

%

7.6

%

Neurotechnology and Spine:

Neurotechnology

$

518

$

490

5.7

%

5.1

%

1.9

%

12.6

%

11.1

%

Spine

302

283

6.6

6.1

4.9

11.3

9.6

$

820

$

773

6.0

%

5.5

%

3.1

%

12.2

%

10.6

%

Total

$

3,737

$

3,587

4.2

%

3.8

%

3.9

%

5.0

%

3.3

%


Nine Months

United States

International

Percentage Change

2020

2019

As Reported

Constant Currency

As Reported

As Reported

Constant Currency

Orthopaedics:

Knees

$

1,108

$

1,305

(15.1

)

%

(14.8

)

%

(13.4

)

%

(19.8

)

%

(18.8

)

%

Hips

866

1,011

(14.4

)

(13.9

)

(12.3

)

(18.1

)

(16.8

)

Trauma and Extremities

1,152

1,197

(3.8

)

(3.5

)

(1.9

)

(7.1

)

(6.4

)

Other

307

272

13.0

13.1

17.5

(7.5

)

(6.7

)

$

3,433

$

3,785

(9.3

)

%

(9.0

)

%

(7.1

)

%

(14.2

)

%

(13.2

)

%

MedSurg:

Instruments

$

1,308

$

1,417

(7.7

)

%

(7.4

)

%

(8.4

)

%

(5.1

)

%

(3.5

)

%

Endoscopy

1,238

1,424

(13.0

)

(12.7

)

(12.2

)

(16.4

)

(14.8

)

Medical

1,819

1,627

11.8

12.6

5.8

34.6

38.8

Sustainability

181

212

(14.7

)

(14.7

)

(14.7

)

nm

nm

$

4,546

$

4,680

(2.9

)

%

(2.4

)

%

(5.0

)

%

5.9

%

8.4

%

Neurotechnology and Spine:

Neurotechnology

$

1,370

$

1,443

(5.1

)

%

(4.7

)

%

(10.2

)

%

4.2

%

5.3

%

Spine

740

845

(12.4

)

(12.1

)

(14.8

)

(4.9

)

(3.9

)

$

2,110

$

2,288

(7.8

)

%

(7.4

)

%

(12.1

)

%

1.6

%

2.6

%

Total

$

10,089

$

10,753

(6.2

)

%

(5.8

)

%

(7.1

)

%

(3.6

)

%

(2.1

)

%

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; percentage sales growth in constant currency; percentage organic sales growth; adjusted gross profit; adjusted selling, general and administrative expenses; adjusted research, development and engineering expenses; adjusted operating income; adjusted other income (expense), net; 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. To measure percentage organic sales growth, we remove the impact of changes in foreign currency exchange rates and acquisitions, 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. 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, research, development and engineering expenses, operating income, other income (expense), net, 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 net earnings per diluted share are the same as those used in the calculation of reported net earnings per diluted share for the respective period.

STRYKER CORPORATION

For the Three and Nine Months September 30

(Unaudited - Millions of Dollars, Except Per Share Amounts)

Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures

Three Months 2020

Gross Profit

Selling, General & Administrative Expenses

Research, Development & Engineering Expenses

Operating Income

Other income (expense), net

Net Earnings

Effective
Tax Rate

Diluted EPS

Reported

$

2,461

$

1,244

$

242

$

859

$

(79

)

$

621

20.4

%

$

1.63

Reported percent net sales

65.9

%

33.3

%

6.5

%

23.0

%

(2.1

)

%

16.6

%

Acquisition and integration-related charges (a)

Inventory stepped-up to fair value

Other acquisition and integration-related

(29

)

29

24

0.1

0.07

Amortization of purchased intangible assets

114

93

0.4

0.25

Restructuring-related and other charges (b)

(29

)

29

26

(0.1

)

0.06

Medical device regulations (c)

(13

)

14

11

0.1

0.03

Recall-related matters (d)

2

2

(0.2

)

0.01

Regulatory and legal matters (e)

Tax matters (f)

35

(4.6

)

0.09

Adjusted

$

2,461

$

1,186

$

229

$

1,047

$

(79

)

$

812

16.1

%

$

2.14

Adjusted percent net sales

65.9

%

31.7

%

6.1

%

28.0

%

(2.1

)

%

21.7

%


Three Months 2019

Gross Profit

Selling, General & Administrative Expenses

Research, Development & Engineering Expenses

Operating Income

Other income (expense), net

Net Earnings

Effective
Tax Rate

Diluted EPS

Reported

$

2,330

$

1,291

$

246

$

628

$

(47

)

$

466

19.8

%

$

1.23

Reported percent net sales

65.0

%

36.0

%

6.9

%

17.5

%

(1.3

)

%

13.0

%

Acquisition and integration-related charges (a)

Inventory stepped-up to fair value

17

17

13

0.2

0.03

Other acquisition and integration-related

(15

)

15

8

0.6

0.02

Amortization of purchased intangible assets

116

105

(1.5

)

0.28

Restructuring-related and other charges (b)

10

(37

)

48

40

0.1

0.11

Medical device regulations (c)

(15

)

15

13

0.03

Recall-related matters (d)

49

28

2.2

0.07

Regulatory and legal matters (e)

(25

)

25

14

1.2

0.04

Tax matters (f)

38

(6.5

)

0.10

Adjusted

$

2,357

$

1,214

$

231

$

913

$

(47

)

$

725

16.1

%

$

1.91

Adjusted percent net sales

65.7

%

33.8

%

6.5

%

25.4

%

(1.3

)

%

20.2

%


Nine Months 2020

Gross Profit

Selling, General & Administrative Expenses

Research, Development & Engineering Expenses

Operating Income

Other income (expense), net

Net Earnings

Effective
Tax Rate

Diluted EPS

Reported

$

6,340

$

3,799

$

729

$

1,474

$

(191

)

$

1,031

19.6

%

$

2.71

Reported percent net sales

62.8

%

37.7

%

7.2

%

14.6

%

(1.9

)

%

10.2

%

Acquisition and integration-related charges (a)

Inventory stepped-up to fair value

9

9

6

0.1

0.02

Other acquisition and integration-related

(76

)

76

60

0.4

0.16

Amortization of purchased intangible assets

342

277

1.0

0.73

Restructuring-related and other charges (b)

36

(256

)

292

238

0.8

0.62

Medical device regulations (c)

1

(59

)

60

47

0.3

0.12

Recall-related matters (d)

(4

)

(2

)

(0.2

)

Regulatory and legal matters (e)

(5

)

5

6

(0.2

)

0.02

Tax matters (f)

7

93

(6.6

)

0.24

Adjusted

$

6,386

$

3,462

$

670

$

2,254

$

(184

)

$

1,756

15.2

%

$

4.62

Adjusted percent net sales

63.3

%

34.3

%

6.6

%

22.3

%

(1.8

)

%

17.4

%


Nine Months 2019

Gross Profit

Selling, General & Administrative Expenses

Research, Development & Engineering Expenses

Operating Income

Other income (expense), net

Net Earnings

Effective
Tax Rate

Diluted EPS

Reported

$

6,993

$

3,976

$

717

$

1,769

$

(143

)

$

1,358

16.5

%

$

3.58

Reported percent net sales

65.0

%

37.0

%

6.7

%

16.5

%

(1.3

)

%

12.6

%

Acquisition and integration-related charges (a)

Inventory stepped-up to fair value

55

55

42

0.3

0.11

Other acquisition and integration-related

(168

)

168

126

1.0

0.33

Amortization of purchased intangible assets

352

294

0.1

0.78

Restructuring-related and other charges (b)

21

(125

)

146

122

0.1

0.32

Medical device regulations (c)

1

(33

)

34

28

0.1

0.07

Recall-related matters (d)

179

144

0.4

0.38

Regulatory and legal matters (e)

(35

)

35

19

0.5

0.05

Tax matters (f)

58

(3.5

)

0.15

Adjusted

$

7,070

$

3,648

$

684

$

2,738

$

(143

)

$

2,191

15.5

%

$

5.77

Adjusted percent net sales

65.7

%

33.9

%

6.4

%

25.5

%

(1.3

)

%

20.4

%


(a)

Charges represent certain acquisition and integration-related costs associated with acquisitions.

(b)

Charges represent the costs associated with the termination of sales relationships in certain countries, workforce reductions, elimination of product lines, certain long-lived asset impairments and associated costs and other restructuring-related activities.

(c)

Charges represent the costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with the medical device reporting regulations and other requirements of the new medical device regulations in the European Union and China.

(d)

Charges represent changes in our best estimate of the minimum end of the range of probable loss to resolve certain recall-related matters.

(e)

Our best estimate of the minimum of the range of probable loss to resolve certain regulatory or other legal matters and the amount of favorable awards from settlements.

(f)

Benefits and charges represent the accounting impact of certain significant and discrete tax items, including adjustments related to the Tax Cuts and Jobs Act of 2017, and the transfer of certain intellectual properties between tax jurisdictions.