Stryker (SYK) Q1 Earnings Beat Estimates, 2018 View Solid

Stryker Corporation SYK reported first-quarter 2018 adjusted earnings per share (EPS) of $1.68, beating the Zacks Consensus Estimate by 5%. The EPS figure exceeded the high end of the guidance and also increased 13.5% year over year.

The Michigan-based medical device company reported first-quarter revenues of $3.24 billion, beating the Zacks Consensus Estimate of $3.20 billion by a narrow margin. Revenues also increased 9.7% on a year-over-year basis.

Organic sales growth was an impressive 7% and the performance in Japan, China, Australia and emerging markets was striking as well.

Meanwhile, in the last six months, the stock has rallied 8.2%, compared with the industry’s gain of 4.5%.

Stryker Corporation Price, Consensus and EPS Surprise

 

Stryker Corporation Price, Consensus and EPS Surprise | Stryker Corporation Quote

Segment Details

Orthopaedics

Revenues in this segment came in at $1.22 billion, up 4.7% at cc. The upside can be attributed to the Knees division which reported sales worth $491 million, up 5% at cc. Moreover, organic net sales in the segment rose 4.7%.

Per management, the flagship Mako Total Knee platform saw a significant uptick in new robot installations year over year.

MedSurg

This segment registered revenues of $1.43 billion, up 9.1% at cc. Organic net sales in the segment increased 7.8% despite supply issues related to the company’s Puerto Rico facility ramp-up.

The growth was mainly driven by the sub-segments Instruments, Endoscopy and Medical. Instruments saw 4.1% growth at cc to $412 million, Endoscopy grew 18.7% to $444 million and Medical rose 7.2% to $511 million.

Per management, the Medical division witnessed U.S. organic growth of 4.8%, driven by strong performance of core bed and power cot products as well as physio business.

Neurotechnology and Spine

Revenues in this segment came in at $598 million, up 13.5% at cc. Organic net sales in the segment increased 10.1%.

Neurotechnology registered revenues worth $410 million, up 20.8% at cc, while Spine revenues came in at $188 million, up 0.3% at cc.

However, in the reported quarter, the Spine business saw softness as well as low-double digit price declines across core product lines. The segment is also gaining from the recent integration of Entellus Medical.

Geographical Details

Sales in the United States came in at $2.31 billion, up 8.3% at constant currency (cc).

International sales totaled $927 million, up 8% at cc.

Per management, Stryker had strong performances in Japan, South Pacific and Canada. The company also registered double-digit growth on a year-over-year basis in the emerging markets.

However, the company’s performance in Europe lacked luster in the first quarter.

Margins

In the quarter under review, operating margin expanded 70 basis points (bps) to 25%.

Adjusted gross margin of 66.3% improved nominally from the prior-year quarter. Per management, gross margin was favorably impacted by productivity, efficiency and foreign exchange gains, offset by business mix and price.

Financial Condition

Stryker continues to maintain a strong position with $2.5 billion of cash and marketable securities, of which approximately 55% was held outside the United States. Cash flow in the first quarter was approximately $297 million. Total debt on the balance sheet at the end of the quarter was $7.9 billion.

Guidance

Buoyed by the stellar first-quarter performance, Stryker now expects second-quarter earnings per share within $1.70-$1.75. Notably, the Zacks Consensus Estimate for second-quarter earnings is pegged at $1.70, which is pretty encouraging.

Moreover, organic net sales growth in 2018 is expected within 6.5-7% and adjusted net earnings per diluted share in the range of $7.18-$7.25.

Management is also confident of a 30-50 bps improvement in operating margin.

Our Take

Stryker’s strong first-quarter 2018 show was largely backed by solid performance by all segments. Moreover, the company witnessed high domestic and international growth in revenues. A strong guidance for the current quarter and full year buoys optimism on the company. Moreover, surging operating margins reflect strength in the company’s prospects.

However, supply issues in the Puerto Rico facility and a declining gross margin raise concern.

Zacks Ranks & Other Key Picks

Stryker carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks which delivered solid results this earnings season are Laboratory Corporation of America Holdings LH, Chemed Corporation CHE and Intuitive Surgical, Inc. ISRG. While Intuitive Surgical sports a Zacks Rank #1 (Strong Buy), LabCorp and Chemed carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

LabCorp reported first-quarter 2018 adjusted EPS of $2.78, beating the Zacks Consensus Estimate by 5.3%. Revenues came in at $2.85 billion, steering past the Zacks Consensus Estimate of $2.78 billion.

Chemed posted first-quarter 2018 adjusted EPS of $2.72, surpassing the Zacks Consensus Estimate of $2.37. Revenues came in at $439.2 million, beating the Zacks Consensus Estimate of $420 million.

Intuitive Surgical reported first-quarter 2018 adjusted EPS of $2.44, which beat the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, also surpassing the consensus estimate by 10.6%.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Intuitive Surgical, Inc. (ISRG) : Free Stock Analysis Report
 
Stryker Corporation (SYK) : Free Stock Analysis Report
 
Chemed Corporation (CHE) : Free Stock Analysis Report
 
Laboratory Corporation of America Holdings (LH) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.