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    STRYKER (SYK)

    Q4 2023 Earnings Summary

    Reported on Jan 10, 2025
    Pre-Earnings PriceN/ADate unavailable
    Post-Earnings PriceN/ADate unavailable
    Price ChangeN/A
    • Strong leadership in robotic-assisted surgery with Mako, achieving a record quarter of installations globally and increasing utilization, with 60% of U.S. knee and 34% of hip procedures performed using Mako as of year-end. This drives above-market growth, as Stryker continues to grow roughly 300 basis points faster than the market due to its huge lead in robotic-assisted surgery and cementless implants.
    • Robust pipeline of innovation and successful product launches, including upcoming launches in Sports Medicine, particularly in shoulder, with four new shoulder products planned , and continuing momentum from System 9, Neptune S, and the 1788 camera system. This sustained innovation supports strong organic sales growth guidance of 7.5% to 9% for 2024.
    • Favorable market dynamics, including strong procedural demand driven by aging demographics and increased activity levels among elderly patients , leading to busy hospitals, elevated capital spending, and growth in ambulatory surgery centers (ASCs) where Stryker is winning at spectacular rates. This is further supported by healthy hospital CapEx budgets and an elevated capital order book entering 2024.
    • Potential impact of China's Volume-Based Procurement (VBP) on sales growth, particularly in the Neurovascular segment, where China VBP has already hurt performance and may continue to affect sales ,.
    • Flat pricing expected for 2024, despite prior favorable pricing trends, which could limit future margin expansion ,.
    • Possible margin dilution from future M&A activity, especially if larger deals are pursued, which could impact earnings and the company's ability to meet margin expansion targets ,.
    1. 2024 Sales Guidance Q: What's driving your 7.5%-9% organic sales growth guidance? A: Kevin Lobo expressed strong confidence in the 7.5% to 9% organic sales growth for 2024, citing robust procedure volumes, healthy capital markets, and hospitals actively spending. He highlighted that they exited the year with more backlog than they began, and emphasized a strong pipeline of innovation with new launches planned for 2024.

    2. Operating Margin Expansion Q: Are you still committed to 200bps margin expansion by 2025? A: Glenn Boehnlein affirmed their commitment to achieving 200 basis points of operating margin expansion by the end of 2025, getting back to pre-COVID levels. He noted that while expansion will be more back-half loaded, they have opportunities in both gross margin improvements and operating expenses leverage due to their strong growth.

    3. M&A Strategy Q: What's your approach to M&A in 2024? A: Kevin Lobo stated that Stryker is back on M&A offense, focusing on smaller tuck-in deals but remaining open to larger acquisitions. With their leverage back to desired levels, they plan to be active in pursuing opportunities and have a long list of targets prepared by their business development teams.

    4. Orthopaedics and Mako Growth Q: How confident are you in continued orthopaedics growth? A: Kevin Lobo is very confident, highlighting that 60% of U.S. knee procedures are now performed using the Mako robot. Hips are also climbing, fueled by the launch of the 4.0 software, and cementless procedures continue to grow. Mako remains the growth engine in both hospitals and ASCs, and the company is excited about upcoming innovations like Mako Spine and Mako Shoulder.

    5. Medical Segment Outlook Q: Can Medical maintain its strong growth? A: Kevin Lobo expects the Medical segment to continue growing above Stryker's average growth rate for the next five years. Despite tougher comps, he emphasized the strength in areas like Sage, AEDs, Vocera, and their bed business, all supported by ongoing innovation and a strong leadership team.

    6. Healthcare Utilization Trends Q: Are there capacity constraints for procedure growth? A: Kevin Lobo noted that hospitals are busy but have largely resolved staffing issues. With aging demographics and increasing activity levels among the elderly, demand remains strong. ASCs are contributing to growth, and he doesn't foresee capacity constraints impacting procedure volumes in the near term.

    7. Ambulatory Surgery Centers (ASCs) Q: How significant are ASCs in your strategy? A: ASCs play a crucial role, with 12%-15% of hips and knees now performed in these centers. Stryker is well-positioned, offering a comprehensive suite of products for orthopaedic ASCs, including capital equipment and implants across various specialties. This has contributed to winning ASC deals and is expected to drive future growth.

    8. Pricing Strategy Q: What's the outlook for pricing in 2024? A: Glenn Boehnlein indicated that while pricing is expected to be flat on average in 2024, they continue to implement price increases in certain segments, particularly in MedSurg and Neurotech. They haven't backed off their pricing strategy and aim to maximize benefits where possible.

    9. Gross Margin Improvement Q: What drove gross margin expansion in Q4? A: The primary driver of gross margin improvement was favorable mix, with strong growth in higher-margin products. Solid price performance also contributed, along with operational efficiencies gained from increased sales volumes in the quarter.

    10. Mako Shoulder Launch Q: Is Mako Shoulder still set for 2024? A: Kevin Lobo confirmed that Mako Shoulder is expected to launch at the end of 2024 but won't have a significant revenue impact until 2025. The technology aims to simplify complex procedures, making them easier for surgeons and improving patient outcomes.

    11. Neurovascular Business Outlook Q: What's your plan for Neurovascular growth? A: Kevin Lobo acknowledged challenges due to China's VBP impact but remains positive about the neurovascular market. He mentioned that the SERF acquisition has strengthened their hemorrhagic portfolio internationally and they are exploring opportunities in areas like liquid embolics to enhance their product offerings.

    12. Tax Rate and PILLAR II Impact Q: How will PILLAR II affect your tax rate? A: Glenn Boehnlein stated that while there is an impact from PILLAR II in 2024, they have fully offset it through tax planning strategies, as reflected in their effective tax rate guidance. It's too early to comment on the impact for 2025.

    13. Spine Market Dynamics Q: Are you capitalizing on competitor disruptions in Spine? A: Kevin Lobo indicated that their improved performance in Spine is due to internal efforts, particularly in enabling technologies like Q Guidance, rather than competitor disruptions. While they anticipate some market disruption in 2024, their focus remains on their own growth strategies.

    14. Soft Tissue Robotics Q: What's your stance on soft tissue robotics? A: Kevin Lobo expressed interest in the soft tissue robotics space but emphasized respect for the dominant incumbent. While it's an area of exploration, they are cautious about entering the market and would consider making a move if it aligns strategically without directly challenging the incumbent.

    15. Vocera Integration Q: How is Vocera expanding within Stryker? A: Kevin Lobo highlighted successful integrations of Vocera with their beds and wireless stretchers. There's growing interest from third-party companies to connect with their ecosystem, and they see significant potential in automating workflows and reducing cognitive load on nurses, enhancing hospital operations.

    16. Sports Medicine Growth Q: Is Sports Medicine meeting your expectations? A: Kevin Lobo affirmed that Sports Medicine is a significant growth area, describing it as a "rocket ship." With multiple shoulder product launches planned, the business has become integral in winning ASC deals and continues to contribute positively to the company's performance.

    17. Leverage and M&A Capacity Q: What's your current leverage ratio for M&A? A: Glenn Boehnlein stated that they aim to maintain a leverage ratio between 2.5 to 3, currently sitting at the lower end. This provides room for acquisitions without the need for additional borrowing for typical tuck-in deals. Kevin Lobo added that they could consider going above this range for the right strategic opportunity.

    Research analysts covering STRYKER.