Stryker(SYK) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported adjusted EPS of $2.14, reflecting an 8.6% growth compared to the first quarter of 2022 [3][10] - Organic sales growth was 13.6% in the quarter, with US organic sales growth at 12.6% and international organic sales growth at 16.6% [10][100] - Adjusted gross margin was 63.2%, approximately 90 basis points unfavorable from the first quarter of 2022, primarily due to increased manufacturing and supply chain costs [13] - Adjusted operating margin was 21.1% of sales, approximately 70 basis points unfavorable to the first quarter of 2022 [14] Business Line Data and Key Metrics Changes - Endoscopy had US organic sales growth of 16.2%, driven by strong growth across major businesses [11] - Medical had US organic sales growth of 13.2%, benefiting from improved product supply [11] - Orthopedics and Spine had constant currency sales growth of 15.1%, with US organic growth of 13.3% and international growth of 20.3% [12] - Instruments had US organic sales growth of 8.9%, led by double-digit growth in the Surgical Technology business [107] Market Data and Key Metrics Changes - The international business continued to be a growth engine, with strong results in Europe, Australia, Canada, and Japan, while China experienced negative growth due to COVID and volume-based procurement [100][108] - The US Other Orthopedics segment declined organically by 14.8%, primarily due to a shift towards more rentals related to Mako installations [109] Company Strategy and Development Direction - The company is focused on maintaining a strong order book for capital equipment and is optimistic about the ongoing product super cycle [104][138] - Management emphasized the importance of innovation and product launches, including the Neptune S waste management system and the Mako 2.0 software [7][130] - The company plans to continue pursuing acquisitions as a key part of its growth strategy, with a focus on smaller tuck-in deals for the current year [45][161] Management's Comments on Operating Environment and Future Outlook - Management noted a gradual improvement in component availability and lessened supply chain constraints [3] - The company expects full-year organic sales growth to be in the range of 8% to 9%, with adjusted EPS guidance raised to$ 10.05 to $10.25 [101][112] - Management remains cautious about inflationary pressures and the potential impact of foreign exchange rates on sales and EPS [138] Other Important Information - The company ended the first quarter with$ 1.8 billion in cash and marketable securities and total debt of $13.1 billion [111] - Adjusted R&D spending was 6.5% of sales, a decrease from the previous year, while adjusted SG&A was 35.6% of sales, reflecting normalization of sales force expansion [110] Q&A Session Summary Question: What are the growth rates in Q1 for Ortho and MedSurge? - Management indicated that the procedures are ramping nicely and capital demand remains strong, contributing to optimism for the full year [113] Question: Can you provide insights on the performance of the knee and hip business? - The knee business continues to show strong performance, driven by Mako growth and cementless growth, while the hip business is expected to grow above market due to the Insignia Stem launch [116][178] Question: What is the outlook for the ASC market? - Management noted steady progression in both hips and knees, with double-digit penetration expected to continue as more procedures move to ASCs [25] Question: How is the company addressing competitive pressures in the Mako business? - Management acknowledged competitive pressures have shifted customer behavior but emphasized that they are winning at a high rate and installations are being utilized effectively [186] Question: What is the company's approach to acquisitions? - The company is focusing on smaller tuck-in acquisitions for the current year, with plans to pursue larger deals in the future if cash flow remains strong [161]