Q4 2024 Earnings Summary
- The company's Medical division is expected to achieve another year of double-digit growth in 2025, driven by tremendous growth drivers and strong momentum across the portfolio.
- Management expresses confidence in exceeding guidance if current momentum continues, with potential for delivering above the current guidance, indicating conservative guidance and potential upside.
- The company has multiple opportunities to expand operating margins, including through low-cost manufacturing, leveraging shared services, and successful price increases, which can drive earnings growth.
- Potential uncertainty in the latter part of 2025: Kevin Lobo mentioned that while they feel good about the business and have good visibility for the first 6-8 months, "things can change," indicating potential risk for the second half performance.
- Margin expansion relies on aggressive cost reductions: Glenn Boehnlein stated that margin expansion will be driven by purchasing opportunities, expanding low-cost manufacturing footprints, and moving transactional activities to lower-cost locations. This heavy reliance on cost-cutting measures may face challenges or may not be sustainable long term.
- Risks associated with the pending acquisition of Inari Medical: The company acknowledged a DOJ Civil Investigative Demand (CID) related to Inari. Despite due diligence, this investigation poses risks that could impact the transaction or result in future liabilities.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Full‑Year Organic Sales Growth | FY 2024 | no prior guidance | 9.5% to 10% | no prior guidance |
Adjusted EPS | FY 2024 | no prior guidance | $12 to $12.10 | no prior guidance |
Adjusted Effective Tax Rate | FY 2024 | no prior guidance | High end of 14% to 15% | no prior guidance |
Net Adjusted Other Income & Expense | FY 2024 | no prior guidance | $230M to $240M | no prior guidance |
Foreign Exchange Impact (Sales) | FY 2024 | no prior guidance | Slightly unfavorable | no prior guidance |
Foreign Exchange Impact (EPS) | FY 2024 | no prior guidance | -$0.10 | no prior guidance |
Margin Expansion | FY 2024 | no prior guidance | +100 bps in 2024 | no prior guidance |
Full‑Year Organic Net Sales Growth | FY 2025 | no prior guidance | 8% to 9% | no prior guidance |
Adjusted Net Earnings per Share (EPS) | FY 2025 | no prior guidance | $13.45 to $13.70 (pre‑Inari) | no prior guidance |
Adjusted Operating Margin | FY 2025 | no prior guidance | 26.3% | no prior guidance |
Inari Sales Contribution | FY 2025 | no prior guidance | ~$590M | no prior guidance |
Inari Dilutive Impact (Operating Margin) | FY 2025 | no prior guidance | 0 to 20 bps | no prior guidance |
Inari Dilutive Impact (EPS) | FY 2025 | no prior guidance | $0.20 to $0.30 | no prior guidance |
Foreign Exchange Impact (Sales) | FY 2025 | no prior guidance | -1% | no prior guidance |
Foreign Exchange Impact (EPS) | FY 2025 | no prior guidance | -$0.10 to -$0.15 | no prior guidance |
Capital Spending | FY 2025 | no prior guidance | $800M to $850M | no prior guidance |
Effective Tax Rate | FY 2025 | no prior guidance | 15% to 16% | no prior guidance |
Other Income and Expense | FY 2025 | no prior guidance | ~$260M | no prior guidance |
Selling Days | FY 2025 | no prior guidance | Q1 2025 has 1 fewer day | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Organic Sales Growth | FY 2024 | 9.5% to 10% | 10.68% year-over-year growth from Q4 2023 (5,815) to Q4 2024 (6,436) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Consistent emphasis on margin expansion | Reiterated each quarter, targeting 100+ bps expansion in 2024 and 2025, with low-cost manufacturing, SG&A leverage, and R&D efficiencies as primary drivers. | Still a core focus. Achieved 110 bps expansion, aiming for pre-COVID margin levels in 2025. Absorbing Spine business and Inari with minimal dilution. | Continues as a top priority |
Medical division’s repeated double-digit growth trajectory | Consistently reported double-digit U.S. organic sales growth (16.8% Q1, ~12% Q2, ~20% Q3) driven by Sage, wireless stretchers, beds, defibrillators, and Vocera. | Described as the most underappreciated division, expected to continue double-digit growth into 2025. | Maintains strong momentum |
Continued focus on Mako expansions | Q1–Q3 calls emphasized record installations, expansions into spine/shoulder, and broadening ASC presence. | Not specifically highlighted in Q4, but updates on Mako Spine and Shoulder limited releases were shared. | Less Q4 focus, still ongoing |
Inari Medical acquisition and associated DOJ investigation | No prior mentions of Inari in Q1–Q3 documents. | Newly introduced in Q4. Stryker announced the acquisition (85% GM, $15B TAM) and acknowledged the DOJ CID, expressing confidence post due diligence. | New topic in Q4 |
Potential for exceeding guidance | Q3 slightly raised full-year guidance, hinting at strong Q4 finish ; Q2 noted good visibility for possibly exceeding targets ; Q1 indicated caution but raised outlook. | Q4 optimism about beating the 8–9% organic growth outlook. | Continues to lean positive |
Shift away from foreign exchange headwinds | In Q1, FX was a 0.5% unfavorable factor, expected “moderate” impact in 2024. Q2–Q3 had no major FX updates. | No FX discussion in Q4 [N/A]. | Phased out after Q1 |
Orthopaedic growth emphasized in Q2 & Q3 | Strong emphasis in Q2 and Q3 with double-digit trauma and robust knee/hip growth. | Q4 reported ~10% organic growth in orthopaedics but less spotlight on it. | Reduced explicit mention in Q4 |
Emergence of low-cost manufacturing | Q3 also cited low-cost sites/in-sourcing , Q2 noted Poland/Mexico footprints , Q1 referenced strategic in-sourcing without site specifics. | Highlighted as a key margin lever with expansions in Poland, Tijuana, and India Tech Center. | Growing importance for margins |
Heightened uncertainty in second-half 2025 performance | No prior mentions in Q1–Q3 [N/A]. | Not discussed. Q4 showed confidence in 2025, no mention of heightened risks. | Not a concern in Q4 |
Supply constraints no longer mentioned post-Q1 | Q2/Q3 noted resolving constraints in neurovascular, foot/ankle, etc. Q1 admitted some pockets but improving. | No Q4 supply chain concerns raised [N/A]. | Generally resolved |
Persisting concerns over sustainability of orthopaedic growth | Q3 addressed skepticism by calling it a “new normal,” Q2 pointed to mid-single-digit market growth, Q1 indicated confidence but caution. | No explicit concern in Q4; orthopaedics grew ~10% organically. | Concerns eased |
Acquisitions remain a key growth strategy | Q3 featured care.ai, NICO, Vertos (spent ~$1.6B) ; Q2 had Arlon and Moly Surgical ; Q1 highlighted smaller “tuck-in” deals. | Seven acquisitions in 2024, including Inari. Tuck-ins performing well, plan to maintain M&A pace. | Continues with larger moves in Q4 |
Foot & Ankle market softness only noted in Q2 | Q2 called out consecutive quarters of softness ; Q3 provided no specific mention; Q1 was silent [N/A]. | Q4 indicated early-year softness improved by year-end. | Softness less of an issue in Q4 |
Growing dependence on cost reductions for margin expansion | Q3 also stressed low-cost sites, site rationalization, freight optimization; Q2 targeted SG&A leverage; Q1 made broader references to expense control. | Q4 focus on cost optimization, shared services, and R&D leverage. | Rising emphasis on cost-based improvements |
Significant impact of Medical division revenue growth on future performance | Repeated double-digit expansions each quarter (16.8% Q1, ~12% Q2, ~20% Q3) attributed to Sage, defibrillators, and other expansions. | Described as “most underappreciated” with another year of double-digit growth expected. | Critical driver of future growth |
-
Spine Business Divestiture
Q: Why sell the spine business now?
A: We've decided to divest our Spine business for $700 million to the VEB Brothers because we have better opportunities to invest in other areas. We'll partner with them—providing enabling technologies like Mako Spine—and they'll focus on implants. The entire $700 million is expected to be divested to them. -
Inari Acquisition and Impact
Q: What's the outlook and impact of the Inari acquisition?
A: The Inari acquisition fits our model, targeting a return on invested capital back to our weighted average cost of capital in 5 to 7 years. We're excited about their high double-digit sales growth, which will accrete to our own growth. The maximum dilution impact on operating margin expansion will be 20 basis points, and the deal will result in additional borrowings and interest expense. -
Guidance on Organic Revenue Growth
Q: Can you sustain the 8%-9% organic revenue growth?
A: Yes, we're confident about achieving 8% to 9% organic growth in 2025, with robust pipelines across all businesses. We feel bullish and don't see any slowdown ahead. We believe there's minimal risk on the downside and potential to exceed our guidance if momentum continues. -
Operating Margin Expansion
Q: How will you achieve operating margin expansion?
A: We see many opportunities, such as expanding low-cost manufacturing in places like Poland and Tijuana, leveraging shared services, gaining price worldwide, and benefiting from natural leverage by growing sales 8% to 9%. We expect over 100 basis points of operating margin expansion before Inari dilution, and the Spine divestiture will be absorbed without impacting our EPS guidance of $13.45 to $13.70. -
Capital Allocation and M&A Strategy
Q: What's your M&A focus post-Inari and spine sale?
A: Even after acquiring Inari, with debt-to-equity around 3x, we have capacity for tuck-in deals. We're still on offense, looking at adjacencies like Peripheral Vascular, Urology, Neuromodulation, Soft Tissue Robotics, and Healthcare IT. The majority of our deals will continue to be tuck-ins within existing businesses. -
Sustainability of Growth
Q: Is high revenue growth sustainable?
A: We believe our growth is durable, powered by strong pipelines and commercial execution across businesses. We're launching new products before older ones taper off, ensuring continued momentum. We don't expect any material slowdown and plan to maintain or even accelerate growth. -
Mako Shoulder Rollout
Q: How will Mako Shoulder impact the market?
A: We're extremely excited about Mako Shoulder. Surgeons find it compelling, especially since shoulder surgery is complex. While it requires change management, we expect significant impact in the future. It's currently in limited launch to refine training protocols, with broader adoption expected in 2026. Our shoulder business is already growing at strong double digits even without the robot. -
Medical Division Growth
Q: What's driving growth in the Medical division?
A: The Medical division, often underappreciated, continues to deliver double-digit growth. Drivers include products like Sage, emergency care, acute care, beds, wireless stretchers, and Vocera. We anticipate another strong year of double-digit growth in 2025. -
ASC Infrastructure Build-Out
Q: How is ASC expansion affecting your business?
A: We're in early innings of ASC growth, which benefits multiple business units. In Q4, 17% of our knees and 14% of hips were done in ASCs—a record high. This trend is expected to continue gradually over time, positively impacting businesses like hips, knees, sports medicine, and more. -
Capital Expenditure Environment
Q: Any concerns about capital spending amid policy changes?
A: We see the capital environment as very positive and don't have any reason to believe it will change this year, despite any potential healthcare policy discussions. We're aligned with the outlook that markets remain healthy and stable globally. -
R&D Investment and Productivity
Q: How are you approaching R&D spending?
A: Our innovation engine is crucial, and we invest 6% to 7% of sales in R&D. We don't plan to reduce this commitment. We're excited about opportunities in areas like software programming and AI, ensuring a steady cadence of new product launches to sustain growth. -
Impact of Spine Divestiture on Earnings
Q: How does spine sale affect EPS seasonality?
A: When we remove Spine, it's not material to our overall numbers. The seasonality you've seen in 2024 will generally carry forward into 2025. Spine's divestiture will be absorbed in our EPS guidance of $13.45 to $13.70. -
Mako and Enabling Technologies Post-Spine Sale
Q: How will Mako and enabling tech work after spine sale?
A: Mako Spine remains compelling. Surgeons using our spine implants will continue with similar sales support. While we're no longer investing in implant innovation, we'll provide the enabling technology like Mako, partnering with VEB Spine. We don't expect significant differences for customers. -
Foot & Ankle Performance
Q: How did Foot & Ankle fare in Q4?
A: The Foot & Ankle market was soft in early 2024 but started picking up around September. Our business improved in Q4. However, the standout in Trauma and Extremities was driven by our shoulder business and core trauma, boosted by products like Pangea. -
ASC Trend and Procedure Mix
Q: Which businesses benefit from ASC growth?
A: ASC expansion positively impacts multiple business units, including hips, knees, sports medicine, orthopedic instruments, and more. Each ASC deal varies, involving at least six of our business units on average. We expect the trend to continue without an end in sight. -
Capital Spending and Geographic Outlook
Q: Do you agree that markets remain healthy globally?
A: Yes, we agree that orthopedic markets are healthy and stable, volumes are robust, pricing pressures are lessening, and capital equipment markets remain healthy worldwide. We feel very aligned with this outlook as we enter 2025. -
Sales from Recent Acquisitions
Q: How are recent acquisitions contributing to sales?
A: We're extremely excited about our recent acquisitions; all are at or above our deal models. We confidently expect them to contribute at least $300 million this year, possibly surpassing that figure. Integrations have been simple, as they tuck into existing call points. -
Manufacturing Footprint and Tariffs
Q: Are potential tariffs on Mexico a concern?
A: We have around 40 manufacturing plants globally, with just one in Mexico. We're monitoring the situation closely but given the small exposure, it's not a significant concern at this time. -
Due Diligence on Inari Acquisition
Q: How did you perform due diligence on Inari quickly?
A: Being a publicly traded company, Inari's information was largely available. We had done our homework on public data and knew where to look during due diligence. This timeframe is typical for public company deals. -
Capital Allocation Post-Inari
Q: Will you enter other cardiovascular sectors?
A: Initially, we'll focus on integrating Inari and may expand within the peripheral space. We don't expect to make a near-term jump into the broader cardiovascular sector, choosing to concentrate on areas where we can add value.