Stryker reports first quarter 2020 operating results

Kalamazoo, Michigan, April 30, 2020 (GLOBE NEWSWIRE) -- Stryker (NYSE:SYK) reported operating results for the first 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 deferral of elective medical procedures and social contact restrictions, which have had a significant negative impact on Stryker’s operations and financial results.

First Quarter Results

• Reported net sales increased 2.0% to $3.6 billion
• Organic net sales increased 2.4%
• Reported operating income margin of 17.7%
• Adjusted operating income margin⁽¹⁾ contracted 110 bps to 24.0%
• Reported EPS increased 19.3% to $1.30
• Adjusted EPS⁽¹⁾ decreased 2.1% to $1.84

100%; border-collapse:collapse !important;">

	First Quarter Net Sales Growth Overview
	Reported		Foreign Currency Exchange		Constant Currency		Acquisitions		Organic
Orthopaedics	(2.1	)%		(0.9	)%		(1.2	)%		—	%		(1.2	)%
MedSurg	6.2			(0.8	)		7.0			0.7			6.3
Neurotechnology and Spine	0.7			(0.8	)		1.5			1.2			0.3
Total	2.0	%		(0.9	)%		2.9	%		0.5	%		2.4	%

"Our first quarter organic sales growth of 2.4% reflects strong momentum through much of the quarter before experiencing a significant negative impact from the COVID-19 pandemic," said Kevin Lobo, Chairman and Chief Executive Officer. "We have taken a number of steps designed to ensure the safety of our employees and customers while continuing to meet the needs of hospitals and caregivers providing essential services. While the fluidity of the current environment makes it difficult to predict our financial performance for the remainder of 2020, given the strength of our balance sheet and cost containment efforts underway, we believe we are well positioned to manage through this unprecedented situation. And as patients who have deferred surgical procedures begin to return over the coming weeks and months, we will work with our customers to help meet the expected demand. On behalf of the Stryker leadership team, I would like to offer my thanks to our thousands of employees around the globe and to the caregivers and first responders for their tremendous efforts in dealing with this health crisis."

Sales Analysis

Consolidated net sales were significantly negatively impacted by the global response to the COVID-19 pandemic, resulting in lower than previously expected unit volume growth rates across all segments.

Consolidated net sales of $3.6 billion increased 2.0% in the quarter and 2.9% in constant currency. Organic net sales increased 2.4% in the quarter including 2.8% from increased unit volume partially offset by 0.4% from lower prices.

Orthopaedics net sales of $1.2 billion decreased 2.1% in the quarter and 1.2% in constant currency. Organic net sales decreased 1.2% in the quarter including 1.5% from lower prices partially offset by 0.3% from increased unit volume.

MedSurg net sales of $1.6 billion increased 6.2% in the quarter and 7.0% in constant currency. Organic net sales increased 6.3% in the quarter including 6.0% from increased unit volume and 0.3% from higher prices.

Neurotechnology and Spine net sales of $0.7 billion increased 0.7% in the quarter and 1.5% in constant currency. Organic net sales increased 0.3% in the quarter from increased unit volume.

Earnings Analysis

Earnings were significantly negatively impacted by the global response to the COVID-19 pandemic. Reported net earnings of $493 million increased 19.7% in the quarter. Reported net earnings per diluted share of $1.30 increased 19.3% in the quarter. Reported gross profit margin and reported operating income margin were 65.0% and 17.7% in the quarter.  Adjusted gross profit margin⁽¹⁾ and adjusted operating income margin⁽¹⁾ were 65.3% and 24.0%, a decline of 110 basis points in the quarter. Adjusted net earnings⁽¹⁾ of $699 million decreased 2.1% in the quarter. Adjusted net earnings per diluted share⁽¹⁾ of $1.84 decreased 2.1% in the quarter.

2020 Outlook

The global response to the COVID-19 pandemic has had, and we expect will continue to have, a significant negative impact on Stryker’s operations and financial results. While we reported overall increased unit volume in the quarter, most of our businesses saw dramatic declines in the month of March 2020. 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 second 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 Thursday, April 30, 2020

As previously announced, Stryker will host a conference call on Thursday, April 30, 2020 at 4:30 p.m., Eastern Time, to discuss the company's operating results for the quarter ended March 31, 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 4595129 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, April 30, 2020, until 11:59 p.m., Eastern Time, on Thursday, May 7, 2020. To hear this recording, you may dial (800) 585-8367 (domestic) or (416) 621-4642 (international) and enter conference ID number 4595129.

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:

Katherine Owen, Vice President, Strategy & 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

100%; border-collapse:collapse !important;">

STRYKER CORPORATION
For the Three Months March 31
(Unaudited - Millions of Dollars, Except Per Share Amounts)
CONSOLIDATED STATEMENTS OF EARNINGS
	Three Months
	2020		2019		% Change
Net sales	$	3,588			$	3,516			2.0	%
Cost of sales	1,257			1,233			1.9
Gross profit	$	2,331			$	2,283			2.1	%
% of sales	65.0	%		64.9	%
Research, development and engineering expenses	254			225			12.9
Selling, general and administrative expenses	1,330			1,403			(5.2	)
Recall charges	(6	)		13			nm
Amortization of intangible assets	118			114			3.5
Total operating expenses	$	1,696			$	1,755			(3.4	)%
Operating income	$	635			$	528			20.3	%
% of sales	17.7	%		15.0	%
Other income (expense), net	(45	)		(48	)		(6.3	)
Earnings before income taxes	$	590			$	480			22.9	%
Income taxes	97			68			42.6
Net earnings	$	493			$	412			19.7	%
Net earnings per share of common stock:
Basic	$	1.32			$	1.10			20.0	%
Diluted	$	1.30			$	1.09			19.3	%
Weighted-average shares outstanding (in millions):
Basic	374.8		373.3
Diluted	379.7		379.3

100%; border-collapse:collapse !important;">

CONDENSED CONSOLIDATED BALANCE SHEETS
	March 31		December 31
	2020		2019
Assets
Cash and cash equivalents	$	3,964			$	4,337
Marketable securities	84			88
Accounts receivable, net	2,646			2,893
Inventories	3,359			3,282
Prepaid expenses and other current assets	683			760
Total current assets	$	10,736			$	11,360
Property, plant and equipment, net	2,607			2,567
Goodwill and other intangibles, net	13,132			13,296
Noncurrent deferred income tax assets	1,537			1,575
Other noncurrent assets	1,428			1,369
Total assets	$	29,440			$	30,167
Liabilities and shareholders' equity
Current liabilities	$	4,162			$	4,400
Long-term debt, excluding current maturities	9,404			10,231
Income taxes	1,026			1,068
Other noncurrent liabilities	1,733			1,661
Shareholders' equity	13,115			12,807
Total liabilities and shareholders' equity	$	29,440			$	30,167

100%; border-collapse:collapse !important;">

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	Three Months
	2020		2019
Operating activities
Net earnings	$	493			$	412
Depreciation	80			76
Amortization of intangible assets	118			114
Changes in operating assets, liabilities, income taxes payable and other, net	(100	)		(289	)
Net cash provided by operating activities	$	591			$	313
Investing activities
Acquisitions, net of cash acquired	$	(23	)		$	(180	)
Change in marketable securities, net	4			(1	)
Purchases of property, plant and equipment	(144	)		(122	)
Net cash used in investing activities	$	(163	)		$	(303	)
Financing activities
Borrowings (payments) of debt, net	$	(496	)		$	(1,353	)
Dividends paid	(215	)		(195	)
Repurchases of common stock	—			(307	)
Other financing, net	(57	)		(92	)
Net cash provided by (used in) financing activities	$	(768	)		$	(1,947	)
Effect of exchange rate changes on cash and cash equivalents	(33	)		(5	)
Change in cash and cash equivalents	$	(373	)		$	(1,942	)

nm - not meaningful

100%; border-collapse:collapse !important;">

STRYKER CORPORATION

For the Three Months March 31

(Unaudited - Millions of Dollars)

100%; border-collapse:collapse !important;">

SALES GROWTH ANALYSIS
	Three Months
			Percentage Change
	2020	2019		As Reported		Constant Currency
Geographic:
United States	$	2,643		$	2,579			2.5	%		2.5	%
International	945		937			0.8			4.2
Total	$	3,588		$	3,516			2.0	%		2.9	%
Segment:
Orthopaedics	$	1,222		$	1,250			(2.1	)%		(1.2	)%
MedSurg	1,622		1,527			6.2			7.0
Neurotechnology and Spine	744		739			0.7			1.5
Total	$	3,588		$	3,516			2.0	%		2.9	%

100%; border-collapse:collapse !important;">

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	$	432		$	439			(1.7	)%		(0.8	)%		0.6	%		(7.8	)%	(4.5	)%
Hips	316		336			(5.9	)		(4.8	)		(5.7	)		(6.4	)	(3.2	)
Trauma and Extremities	392		396			(0.8	)		0.2			2.7			(6.9	)	(4.3	)
Other	82		79			4.7			5.3			9.4			(14.3	)	(11.5	)
	$	1,222		$	1,250			(2.1	)%		(1.2	)%		0.3	%		(7.3	)%	(4.3	)%
MedSurg:
Instruments	$	513		$	461			11.1	%		11.9	%		12.0	%		7.8	%	11.4	%
Endoscopy	455		470			(3.2	)		(2.4	)		(2.9	)		(4.1	)	(0.4	)
Medical	587		531			10.5			11.5			9.1			15.5		20.3
Sustainability	67		65			2.8			2.8			3.1			nm	nm
	$	1,622		$	1,527			6.2	%		7.0	%		6.0	%		6.9	%	11.1	%
Neurotechnology and Spine:
Neurotechnology	$	483		$	469			3.1	%		4.0	%		0.2	%		8.1	%	10.8	%
Spine	261		270			(3.5	)		(2.8	)		(5.6	)		3.3		6.4
	$	744		$	739			0.7	%		1.5	%		(2.1	)%		6.8	%	9.6	%
Total	$	3,588		$	3,516			2.0	%		2.9	%		2.5	%		0.8	%	4.2	%

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 earnings per share are the same as those used in the calculation of reported earnings per share for the respective period.

100%; border-collapse:collapse !important;">

STRYKER CORPORATION
For the Three Months March 31
(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	$	2,331		$	1,330		$	254		$	635		$	(45	)	$	493		16.4	%	$	1.30
Reported percent net sales	65.0	%	37.1	%	7.1	%	17.7	%	(1.3	)%	13.7	%
Acquisition and integration-related charges (a)
Inventory stepped-up to fair value	6		—		—		6		—		5		0.1		0.01
Other acquisition and integration-related	—		(31	)	—		31		—		24		0.3		0.06
Amortization of purchased intangible assets	—		—		—		118		—		96		0.9		0.25
Restructuring-related and other charges (b)	4		(49	)	—		54		—		42		0.6		0.11
Medical device regulations (c)	1		—		(23	)	24		—		18		0.3		0.05
Recall-related matters (d)	—		—		—		(6	)	—		(4	)	(0.1	)	(0.01	)
Regulatory and legal matters (e)	—		—		—		—		—		—		—		—
Tax matters (f)	—		—		—		—		—		25		(4.2	)	0.07
Adjusted	$	2,342		$	1,250		$	231		$	862		$	(45	)	$	699		14.3	%	$	1.84
Adjusted percent net sales	65.3	%	34.8	%	6.4	%	24.0	%	(1.3	)%	19.5	%

100%; border-collapse:collapse !important;">

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	$	2,283		$	1,403		$	225		$	528		$	(48	)	$	412		14.2	%	$	1.09
Reported percent net sales	64.9	%	39.9	%	6.4	%	15.0	%	(1.4	)%	11.7	%
Acquisition and integration-related charges (a)
Inventory stepped-up to fair value	24		—		—		24		—		19		0.3		0.05
Other acquisition and integration-related	—		(114	)	—		114		—		88		2.0		0.23
Amortization of purchased intangible assets	—		—		—		114		—		91		1.3		0.24
Restructuring-related and other charges (b)	5		(52	)	—		56		—		50		(0.3	)	0.13
Medical device regulations (c)	—		—		(7	)	7		—		6		0.1		0.01
Recall-related matters (d)	—		—		—		13		—		10		0.3		0.03
Regulatory and legal matters (e)	—		(25	)	—		25		—		19		0.4		0.05
Tax matters (f)	—		—		—		—		—		19		(3.9	)	0.05
Adjusted	$	2,312		$	1,212		$	218		$	881		$	(48	)	$	714		14.4	%	$	1.88
Adjusted percent net sales	65.8	%	34.4	%	6.2	%	25.1	%	(1.4	)%	20.3	%

100%; border-collapse:collapse !important;">

(a)	Charges represent certain acquisition and integration-related costs associated with acquisitions.
(b)	Charges represent the costs associated with certain restructuring-related activities associated with workforce reductions 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.