Yahoo Finance Stryker Corporation (NYSE:SYK) Q1 2024 Earnings Call Transcript
Stryker Corporation (NYSE:SYK) Q1 2024 Earnings Call Transcript April 30, 2024
Stryker Corporation beats earnings expectations. Reported EPS is $2.5, expectations were $2.35. Stryker Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the First Quarter 2024 Stryker Earnings Call. My name is Christine, and I'm your operator for today's call. At this time, all participants are in a listen-only mode. Following the conference, we will conduct a question-and-answer session. This conference call is being recorded for replay purposes. Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC. Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8-K filed today with the SEC. I will now turn the call over to Mr. Kevin Lobo, Chair and Chief Executive Officer. You may proceed, sir.
Kevin Lobo: Welcome to Stryker's first quarter earnings call. Joining me today are Glenn Boehnlein, Stryker's CFO; and Jason Beach, Vice President of Finance and Investor Relations. For today's call, I will provide opening comments followed by Jason with the trends we saw during the quarter as well as some product updates. Glenn will then provide additional details regarding our quarterly results before we open the call to Q&A. In the first quarter, we delivered organic sales growth of 10% with double-digit growth in MedSurg and Neurotechnology and high single digit growth in Orthopaedics and Spine, despite one less selling day and tough comparables from a year ago. This reflects our team's continued strong commercial execution.
Our results were led by very strong U.S. performance, notably in Instruments, Medical, Endoscopy, Trauma and Extremities and Mako. Internationally, growth momentum continued against strong double digit growth organic sales comparables from the first quarter of last year. We expect this growth rate to accelerate for the remainder of the year as international remains a significant opportunity for us. We delivered quarterly adjusted EPS of $2.50, reflecting 16.8% growth compared to the first quarter of 2023, driven by our strong sales performance and margin expansion. As anticipated, we began to accelerate our M&A activity. We just completed the acquisition of mfPHD, a leading provider of modular stainless steel wall systems. This further enhances our communications business unit portfolio within Endoscopy and helps us meet our customers' needs for turnkey operating room design and construction.
At the end of the quarter, we also closed on our acquisition of SERF within our hip business. Our deal pipeline is strong and we expect to be active over the course of the year. With one quarter behind us, we now expect an increased full year organic sales growth of 8.5% to 9.5% and we are increasing our adjusted EPS range to $11.85 to $12.05 a share. Coming off organic sales growth of 9.7% in 2022 and 11.5% in 2023, this guidance demonstrates the durability of our high growth and is a testament to our commercial strength and extensive pipeline of innovation across the company. Also, it reinforces our ability to meet our target of 200 basis points of operating margin expansion by 2025. Next, I want to thank our teams for their ongoing commitment to talent and culture, which is reflected in the recognition of Stryker for the 14th year in a row as one of Fortune's 100 Best Companies to Work For.
Our operating model, talent and culture are true differentiators for us. In addition, we recently published our fourth annual comprehensive report, which captures our commitments and disclosures on corporate responsibility. I will now turn the call over to Jason.
Jason Beach: Thanks, Kevin. My comments today will focus on providing an update on the current environment, capital demand and select product highlights. Procedural volumes remained strong in the first quarter in line with our expectations driven by continued adoption in robotic-assisted surgery, demographics, a stable pricing environment and healthy patient activity with surgeons. And while pockets of supply constraints remain, our supply continues to be stable overall. Demand for our capital products remained healthy in the quarter with continued elevated backlog across our Endoscopy and Medical divisions. Our Mako direct-to-patient campaign continues to perform well, which contributed to our very strong Mako growth with record first quarter installations in both the U.S. and internationally.
This will continue to drive our hips and knees businesses. In April, we performed our first cases using the Pangea plating system in our Trauma and Extremities division and are gearing up for a full launch. Pangea is the largest launch in trauma's history as it offers a comprehensive system that will enable larger hospital conversions. Next, we received approval from the FDA for our new LIFEPAK 35 defibrillator and monitor. This is a flagship product within our emergency care business unit and was one of the catalysts for our acquisition of Physio-Control. LIFEPAK 35 is a modern platform with a touchscreen interface that brings advanced connected capabilities to improve workflow. We will launch this product at the end of Q2 and it will have a multiyear benefit to our Medical division.
Lastly, Mako, Spine and CoPilot are pacing to launch in Q4, followed by the shoulder application at the end of the year. We continue to receive positive feedback from surgeons who have been exposed to these technologies. With that, I will now turn the call over to Glenn.
Glenn Boehnlein: Thanks, Jason. Today, I will focus my comments on our first quarter financial results and the related drivers. Our detailed financial results have been provided in today's press release. Our organic sales growth was 10% in the quarter compared to 13.6% in the first quarter of 2023. This quarter, we had one less selling day than 2023. The impact from pricing in the quarter was favorable by 0.7%. We continue to see a positive trend from our pricing initiatives, particularly in our MedSurg and Neurotech businesses, almost all of which again contributed positive pricing for the quarter. Foreign currency had a 0.5% unfavorable impact on sales in the quarter. In the quarter, U.S. organic sales growth was 11.3%. International organic sales growth was 6.6% against a very strong comparable growth of over 16% in 2023, this performance included positive sales momentum across most of our international markets, particularly in the United Kingdom and Canada and most of our emerging markets.
Our adjusted EPS of $2.50 in the quarter was up 16.8% from 2023, driven by strong sales growth and operating margin expansion. Foreign currency exchange translation had an unfavorable impact of $0.05. Now I will provide some highlights around our quarterly segment performance. In the quarter, MedSurg and Neurotechnology had constant currency sales growth of 12% and organic sales growth of 11.6% which included 13.5% of U.S. organic growth and 6% of international organic growth. Instruments had U.S. organic growth of 19% with strong double-digit growth across the Orthopaedic Instruments and Surgical Technologies businesses. From a product perspective, sales growth was led by almost 50% growth in smoke evacuation and strong performances in power tools, Steri-Shield, Waste Management and SurgiCount.
Endoscopy had U.S. organic sales growth of 11.1% with double-digit growth in its communications and Endo BU businesses. And from a product perspective, standout growth included cameras, light sources, insufflators, booms and sports medicine implants. Medical had U.S. organic sales growth of 16.8%, led by the solid sales performances in all three businesses. This included strong growth in stretchers, cots, Vocera and Sage products. Neurovascular had U.S. organic sales growth of 2.9%, highlighted by solid performances in our hemorrhagic stents and guidewires. Neuro Cranial had U.S. organic sales growth of 7%, driven by strong performance in our CMF business. Internationally, MedSurg and Neurotechnology had organic sales growth of 6% which included strong performances in our emerging markets.
Orthopaedics and Spine had both constant currency and organic sales growth of 8% which included organic growth of 8.3% in the U.S. and 7.4% internationally. Our U.S. Hip business grew 6.8% organically against a very strong comparable of 16.2% in the same quarter last year. This growth reflects continued strong primary hip performance fueled by our insignia hip stem. Our U.S. Knee business grew 3.1% organically against another very strong comparable of 20.7% in the first quarter of 2023. Our Knee growth reflects our market-leading position in robotic-assisted knee procedures and the continued strength of our installed base. Our U.S. Trauma and Extremities business grew 10.3% organic with strong performances across our upper extremities, biologics and core trauma businesses.
Our U.S. Spine business grew 3.9% organically, led by the performance in our Interventional Spine business. Our U.S. other ortho business grew 45.6% organically, driven by strong Mako installations in the quarter. Internationally, Orthopaedics and Spine grew 7.4% organically including strong performances in Canada and most emerging markets, particularly driven by strong Mako installations. Now I will focus on operating highlights in the first quarter. Our adjusted gross margin of 63.6% represents approximately 50 basis points favorability against the first quarter of 2023. This improvement reflects positive pricing trends as well as continued easing of certain cost pressures that we experienced in the first quarter of 2023. Adjusted R&D spending was 6.8% of sales which was 30 basis points higher than the first quarter of 2023.
Our adjusted SG&A was 35% of sales, which was 60 basis points lower than the first quarter of 2023 due to continued discipline in our spending and investments to support our growth. In summary, for the quarter, our adjusted operating margin was 21.9% of sales which was approximately 80 basis points favorable to the first quarter of 2023. Adjusted other income and expense of $49 million for the quarter was $16 million lower than 2023, driven by favorability in interest rates and a higher level of invested cash resulting in higher interest income. The first quarter of 2024 had an adjusted effective tax rate of 12.3%, reflecting the impact of our geographic mix and certain discrete tax items. For 2024, we still expect our full year effective tax rate to be in the range of 14% to 15%.
Focusing on the balance sheet. We ended the first quarter with 2.4 billion of cash and marketable securities and total debt of approximately 13 billion. Our total debt includes 600 million of debt that is due to be repaid in May and has been prefunded. Turning to cash flow. Our year-to-date cash from operations is 204 million, reflecting the results of net earnings and normal first quarter seasonal cash outflows. Considering our first quarter results, strong procedural volumes and healthy demand for our capital products. We now expect our full year 2024 organic sales growth to be in the range of 8.5% to 9.5% with the pricing impact to be roughly flat. If foreign exchange rates hold near current levels, we anticipate sales will be moderately unfavorable impacted for the full year, being more negative in the first half of the year.
EPS will be negatively impacted at the higher end of our previously guided range of $0.05 to $0.10 cents. With our momentum heading into the rest of the year and our commitment to expanding operating margins, we now expect adjusted net earnings per diluted share to be in the range of 11.85 to 12.05. And now I will open up the call for Q&A.
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