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Stryker Corporation is a global leader in medical technologies, providing innovative products and services aimed at enhancing patient and healthcare outcomes . The company operates through two main business segments: MedSurg and Neurotechnology, and Orthopaedics and Spine . Stryker's offerings include a wide range of medical instruments, endoscopic devices, and orthopedic solutions .
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MedSurg and Neurotechnology - Offers a diverse range of products including Instruments, Endoscopy, Medical, Neurovascular, and Neuro Cranial solutions, contributing significantly to the company's revenue .
- Instruments - Provides surgical tools and equipment for various medical procedures .
- Endoscopy - Develops advanced endoscopic devices for minimally invasive surgeries .
- Medical - Supplies a variety of medical devices and equipment for healthcare facilities .
- Neurovascular - Specializes in products for the treatment of neurovascular conditions .
- Neuro Cranial - Focuses on solutions for cranial surgeries and treatments .
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Orthopaedics and Spine - Delivers comprehensive orthopedic and spine solutions, including Knees, Hips, Trauma and Extremities, Spine, and Other products .
- Trauma and Extremities - Provides implants and devices for trauma care and extremity surgeries .
- Knees - Offers knee replacement and repair solutions .
- Spine - Develops products for spinal surgeries and treatments .
- Hips - Supplies hip replacement and repair solutions .
- Other - Includes various additional orthopedic products .
What went well
- Stryker has demonstrated sustained high organic growth, with 9.7% growth two years ago, 11.5% last year, and 9% to 10% expected this year, showcasing their ability to maintain high growth over multiple years. This is driven by new product launches like Pangea and LifePak 35, continued expansion of Mako, and a strong pipeline including Mako Spine, CoPilot, and Mako Shoulder, which are expected to contribute to future growth.
- Record Mako installations quarter after quarter are driving growth, with significant contributions from international markets such as Japan, India, and Europe. The percentage of hips and knees performed using Mako robots is increasing every quarter, indicating strong adoption. Upcoming additions of spine and shoulder procedures to Mako further enhance growth prospects.
- Positive market dynamics and tailwinds, including a robust and healthy market, strong procedure volumes, and backlog, particularly in endoscopy and medical, are contributing to growth. Stryker has achieved higher-than-expected pricing improvements, which are expected to continue, and growth in ambulatory surgery centers (ASCs) is accretive to their overall growth, favoring them due to the breadth of their offerings.
What went wrong
- Supply chain disruptions: The company experienced supply issues in its neurovascular business and medical business outside the United States, which could impact growth.
- Challenges in existing ASCs: Stryker faces difficulty displacing competitors in existing ambulatory surgical centers (ASCs) with entrenched surgeons using competitive products, potentially limiting market share gains in this growing channel.
- Hesitation in entering growth adjacencies: The company acknowledges the attractiveness of areas like neuromodulation and soft tissue surgical robotics but remains cautious about entering these spaces, which may limit future growth opportunities.
Q&A Summary
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Margin Expansion Q: How will you achieve margin expansion in H2? A: We remain committed to our 200 basis points operating margin expansion—100 basis points this year and another 100 basis points next year, inclusive of M&A. In the second half, we expect more leverage from SG&A than gross margin. We'll control hiring, travel, and meetings, and benefit from natural leverage as we grow off a fixed cost base.
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Guidance Raise Confidence Q: Why raise guidance despite an in-line quarter? A: We're pleased with the quarter and have strong reasons to raise our guidance to a potential 10% organic growth at the high end. We have a significant capital backlog, strong demand for Mako installations, and positive feedback on new products like Pangea and LifePak 35. July is off to a strong start, especially in joint replacement.
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Sustaining High Growth Q: Can high growth rates continue next year? A: Yes, we've demonstrated sustained high growth—9.7% two years ago, 11.5% last year, and targeting up to 10% this year. Next year, Pangea and LifePak 35 will have a bigger impact, and products like Mako Spine and CoPilot are coming. Our innovation pipeline and M&A strategy support continued high growth.
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M&A Activity Q: What's the outlook for M&A in 2024? A: We have a very active deal pipeline, mostly in the tuck-in variety. While most deals aren't large, we'll be very active in both halves of the year. Our strong balance sheet enables us to pursue these opportunities while remaining committed to our margin targets.
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Pricing Power Q: How long can you sustain pricing improvements? A: We're seeing positive pricing outcomes, with 0.7% in Q1 and 1.1% in Q2. We expect this trend to continue throughout 2024, driven by innovation in our MedSurg and NeuroTech businesses. In Orthopedics, we're less negative on pricing than before, and our sales force incentives support margin improvements.
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Record Mako Growth Q: What's driving record Mako placements each quarter? A: International expansion is a major contributor, with markets like Japan and India picking up pace. In the U.S., demand remains strong as customers prefer our technology. The upcoming addition of spine and shoulder applications to Mako will further drive growth.
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New Product Launches Q: How will Pangea and LifePak 35 impact growth? A: Both are significant contributors to future growth. LifePak 35 will ramp up quickly, impacting the second half of this year and having a big year next year. Pangea, though launching more gradually, will provide sustained and consistent growth once fully launched in H2 next year.
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Segment Softness Q: Why is the Foot & Ankle market soft? A: The market has softened due to factors like OR time being prioritized for other procedures and patient co-pays leading to delays. We've seen such lulls before, but patients will return as conditions persist. We're confident in our product pipeline, including innovations like Footprint for total ankle replacement.
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Ambulatory Surgery Centers Q: What's your outlook on procedures shifting to ASCs? A: The shift to ASCs is a positive trend that's exceeding our expectations. Currently, 10–15% of hips and knees are done in ASCs, and we expect this to surpass 15% next year, potentially reaching 30–40% in five years. We are well-positioned to benefit from this shift due to our broad product offering.
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Margin Drivers Q: Where will margin improvements come from? A: In 2024, margin expansion leans more on SG&A leverage. We control expenses like hiring and travel, and benefit from low-cost manufacturing in Poland and Mexico. As we grow, we gain natural leverage from a fixed cost base, contributing to our confident outlook on margins.
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Given the significant margin expansion required in the second half to meet your goal of 100 basis points operating margin growth for 2024, what specific actions are you implementing to achieve this, and how confident are you in the visibility of both gross margin improvements and SG&A leverage?
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The Foot & Ankle market has been unexpectedly soft for two consecutive quarters; what proactive measures are you taking to address this downturn, and what strategies do you have in place if the anticipated rebound does not occur as quickly as expected?
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Recent supply chain disruptions, particularly in flow diverters within your Neurovascular business, have impacted performance; can you detail the underlying causes, your timeline for resolution, and how these issues might influence your growth outlook in this segment?
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Despite recognizing the potential in the tissue surgical robotics market, Stryker has not made a definitive move into this space; what are the key obstacles or strategic considerations preventing you from entering, and how do you plan to remain competitive as the market advances?
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With recent acquisitions like Heartland in Extremities and Moly in Breast Care, how do these additions fit into your broader strategic vision, and what are your plans to effectively integrate and expand these businesses to contribute significantly to growth?
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Full Year Organic Sales Growth: Expected to be in the range of 9% to 10% .
- Adjusted Earnings Per Share (EPS): Expected to be in the range of $11.90 to $12.10 per share .
- Full Year Effective Tax Rate: Expected to be in the range of 14% to 15% .
- Impact of Foreign Exchange Rates: Anticipated to have a moderately unfavorable impact on full-year sales, with EPS negatively impacted in the range of $0.10 to $0.15 .
- Free Cash Flow Conversion: Targeted between 70% and 80% .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: FY 2024
- Guidance:
- Organic Sales Growth: Expected to be in the range of 8.5% to 9.5% for the full year 2024 .
- Adjusted Net Earnings Per Diluted Share (EPS): Expected to be in the range of $11.85 to $12.05 .
- Adjusted Effective Tax Rate: Expected to be in the range of 14% to 15% for the full year 2024 .
- Operating Margin Expansion: Targeting 200 basis points of operating margin expansion over the next two years (2024 and 2025) .
- Foreign Exchange Impact: Sales are anticipated to be moderately unfavorably impacted for the full year, with EPS negatively impacted at the higher end of the previously guided range of $0.05 to $0.10 .
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: FY 2024
- Guidance:
- Organic Sales Growth: Expected to be in the range of 7.5% to 9% .
- Adjusted Net Earnings per Diluted Share: Expected to be in the range of $11.70 to $12.00 .
- Full Year Effective Tax Rate: Expected to be in the range of 14% to 15% .
- Capital Spending: Anticipated to be $650 million to $700 million .
- Other Income and Expense: Expected to be approximately $250 million for the full year .
- Impact of Foreign Exchange Rates: Sales are anticipated to be modestly unfavorably impacted, with EPS negatively impacted by $0.05 to $0.10 .
- Selling Days: There is one additional selling day in 2024 compared to 2023, with one less day in Q1 and one more day in both Q3 and Q4 .
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: FY 2024
- Guidance: The documents do not contain information about the guidance provided in the Q3 2024 earnings call for Stryker (SYK). The available information is from the Q2 2024 earnings call.