Hot Medical Stock Stryker Beats Q1 Estimates, Raises Guidance
Orthopedics giant Stryker ( SYK ) beat Wall Street’s Q1 estimates and raised guidance Wednesday, sending its stock up about 1% in after-hours trading. Stryker reported earnings of $1.24 a share, up 12% from the year-earlier quarter and topping analysts’ consensus of $1.20, according to Thomson Reuters. Sales rose 5% to $2.5 billion, slightly above consensus. On a constant-currency basis, sales grew 6.1% in the quarter. Stryker added half a percentage point to its full-year organic sales-growth guidance, now 5.5% to 6.5%. EPS guidance was raised and tightened to $5.65 to $5.80, from $5.57 to $5.77. For the second quarter, Stryker guided earnings of $1.33 to $1.38 a share, on the high side of Wall Street’s estimate of $1.34. Stryker’s sales grew across all three of its divisions — orthopedics, MedSurg and neurotechnology/spine — which CEO Kevin Lobo said provided the confidence to raise organic sales guidance this early in the year. “I feel very good about the strength of our entire business portfolio,” he said on a conference call with analysts. The major weak point was international sales — contributing more than a quarter of total revenue — which declined 4.6% on a reported basis and by a fraction on a constant-currency basis. The economic troubles in China and Brazil have been affecting the company since last year, but Lobo said he expects the impact to ease in the second half of this year. Last year’s Q1 was especially strong in emerging markets, sharpening the most recent quarter’s decline, he said. Also, he noted, “the inventory bleeds will eventually bleed out.” Analysts were also impressed by the 21% organic growth in the Neurotechnology unit, the fastest-growing subdivision in the company. The bulk of the business comes from Stryker’s line of catheters, stents and coils for treating hemorrhagic stroke, but the company also is seeing growth from its newer products treating ischemic stroke, which is a new market. “There are many strokes that hadn’t been treated prior,” Lobo said on the call. “When you’re creating a new market it’s difficult to predict the pace of growth, but there’s no doubt the growth will be very significant. Obviously, that contributed to the strong performance of neurovascular.” Orthopedics and MedSurg (a division of surgical products) both reported 4.6% organic growth in the quarter. Spinal products rose 8.9%. Analysts on the call also remarked on the improvement Stryker’s operating margin, which rose to 24.2% from 20.8%. Stifel analyst Rick Wise questioned how sustainable this was, given the ups and downs of margins in prior quarters, but Lobo sounded confident. “I’m not going to promise 90 basis points (of improvement) every single quarter, but we are committed to driving leverage at the operating level,” Lobo said. “You’ll see that this year, and you’ll see that when we provide guidance for you in 2017.” Interest expenses were somewhat higher than normal in the quarter due to three recent acquisitions: Sage Products, which makes oral, skin-care and cleaning products; Physio-Control International, which makes monitors and defibrillators; and Synergetics, which filled out the neurology & spine portfolio. Stryker management noted that both the Sage and Physio-Control deals had closed ahead of schedule, in early April. Stryker stock is up about 19% for the year, hitting a series of new highs since it broke out of a consolidation last month. Despite its recent pattern of single-digit growth, it has attained a strong Composite Rating of 91. In regular trading on the stock market today it rose 0.9% to 110.73 after hitting an intraday high of 110.97, a penny short of the all-time high it hit the previous day. About 90 minutes after the close, the stock had cracked 112.