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 Stryker reports third quarter 2016 results
   Thursday, October 27, 2016 4:00:54 PM ET

Kalamazoo, Michigan - October 27, 2016 - Stryker Corporation (SYK ) reported operating results for the third quarter of 2016:

Third Quarter Highlights

Net sales grew 17.1% to $2.8 billion (16.7% constant currency)

Orthopaedics              5.6  % or 5.3% constant currency
MedSurg                   33.0 % or 33.0% constant currency
Neurotechnology and Spine 9.7  % or 8.7% constant currency

Reported net earnings per diluted share increased 19.0% to $0.94

Adjusted net earnings per diluted share(1) increased 11.2% to $1.39

"Our third quarter results again demonstrate our ability to consistently deliver strong organic sales growth at the high end of med tech," said Kevin A. Lobo, Chairman and Chief Executive Officer. "Our acquisitions are performing well and contributed to solid overall earnings performance."

Sales Analysis

Consolidated net sales of $2.8 billion increased 17.1% in the quarter as reported and 16.7% in constant currency, as foreign currency exchange rates favorably impacted net sales by 0.4%. Excluding the 10.5% impact of acquisitions, net sales in the quarter increased 6.2% in constant currency, including 7.5% from increased unit volume partially offset by 1.3% due to lower prices. Net sales from our recently closed acquisitions, Sage Products LLC and Physio-Control International, Inc., contributed $242 million to our consolidated net sales in the quarter.

Orthopaedics net sales of $1.1 billion increased 5.6% in the quarter as reported and 5.3% in constant currency, as foreign currency exchange rates favorably impacted net sales by 0.3%. Excluding the 0.5% impact of acquisitions, net sales in the quarter increased 4.8% in constant currency, including 7.0% from increased unit volume partially offset by 2.2% due to lower prices.

MedSurg net sales of $1.3 billion increased 33.0% in the quarter as reported and in constant currency. Excluding the 25.7% impact of acquisitions, net sales in the quarter increased 7.3% in constant currency, including 7.9% from increased unit volume partially offset by 0.6% due to lower prices.

Neurotechnology and Spine net sales of $0.5 billion increased 9.7% in the quarter as reported and 8.7% in constant currency, as foreign currency exchange rates favorably impacted net sales by 1.0%. Excluding the 1.8% impact of acquisitions, net sales in the quarter increased 6.9% in constant currency, including 7.9% from increased unit volume partially offset by 1.0% due to lower prices.

Earnings Analysis

Reported net earnings of $355 million increased 17.9% in the quarter. Reported net earnings per diluted share of $0.94 increased 19.0% in the quarter. Reported net earnings include certain charges for the amortization of purchased intangible assets, acquisition and integration related activities, Rejuvenate and ABG II and other recall matters and restructuring-related activities. The effect of each of these matters on reported net earnings and net earnings per diluted share appears in the attached reconciliation of actual results to adjusted results. Excluding the impact of these charges increases gross profit margin in the quarter from 66.1% to 66.3% and increases operating income margin from 17.2% to 24.9%.

Excluding the impact of the items described above, adjusted net earnings(2) of $526 million increased 10.5% in the quarter. Adjusted net earnings per diluted share(1) of $1.39 increased 11.2% in the quarter.

2016 Outlook

We expect 2016 organic sales growth to be in the range of 6.0% - 6.5% and adjusted net earnings per diluted share(3) to be in the range of $5.75 - $5.80 compared to our prior target of $5.70 - $5.80. For the fourth quarter we expect adjusted net earnings per diluted share(3) to be in the range of $1.73 - $1.78. If foreign currency exchange rates hold near current levels, we expect a neutral impact on net sales in the fourth quarter and a negative foreign currency impact of less than 0.5% in the full year. We expect the impact of foreign currency on adjusted net earnings per diluted share to be neutral in the fourth quarter.

(1) A reconciliation of reported net earnings per diluted share to adjusted net earnings per diluted share, a non-GAAP financial measure, and other important information appears below.

(2) A reconciliation of reported net earnings to adjusted net earnings, a non-GAAP financial measure, and other important information appears below.

(3) A reconciliation of expected net earnings per diluted share to expected adjusted net earnings per diluted share for the fourth quarter and full year and other important information appears below.

Conference Call on Thursday, October 27, 2016

As previously announced, the Company will host a conference call on Thursday, October 27, 2016 at 4:30 p.m., Eastern Time, to discuss the Company’s operating results for the quarter ended September 30, 2016 and provide an operational update.

To participate in the conference call dial (844) 826-0610 (domestic) or (973) 453-3249 (international) and be prepared to provide conference ID number 57981183 to the operator.

A simultaneous webcast of the call will be accessible via the Company’s website at www.stryker.com. The call will be archived on the Investors page of this site.

A recording of the call will also be available from 8:00 p.m., Eastern Time, on Thursday, October 27, 2016, until 11:59 p.m., Eastern Time, on Thursday, November 3, 2016. To hear this recording you may dial (855) 859-2056 (domestic) or (404) 537-3406 (international) and enter conference ID number 57981183.

Caution Concerning Forward-Looking Statements

This press release contains information that includes or is based on forward-looking statements within the meaning of the federal securities laws that are subject to various risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in such statements. Such factors include, but are not limited to: weakening of economic conditions that could adversely affect the level of demand for our products; pricing pressures generally, including cost-containment measures that could adversely affect the price of or demand for our products; changes in foreign exchange markets; legislative and regulatory actions; unanticipated issues arising in connection with clinical studies and otherwise that affect U.S. Food and Drug Administration approval of new products; changes in reimbursement levels from third-party payors; a significant increase in product liability claims; the ultimate total cost with respect to the Rejuvenate and ABG II matter; the impact of investigative and legal proceedings and compliance risks; resolution of tax audits; the impact of the federal legislation to reform the United States healthcare system; changes in financial markets; changes in the competitive environment; our ability to integrate acquisitions; and our ability to realize anticipated cost savings. Additional information concerning these and other factors is contained in our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

Stryker is one of the world’s leading medical technology companies and, together with our customers, we are driven to make healthcare better. The Company offers a diverse array of innovative products and services in Orthopaedics, Medical and Surgical, and Neurotechnology and Spine that help improve patient and hospital outcomes. Stryker is active in over 100 countries around the world. Please contact us for more information at www.stryker.com.

For investor inquiries please contact:

Katherine A. Owen, Stryker Corporation, 269-385-2600 or katherine.owen@stryker.com

For media inquiries please contact:

Yin Becker, Stryker Corporation, 269-385-2600 or yin.becker@stryker.com

STRYKER CORPORATION
For the Three and Nine Months Ended September 30
(Unaudited - Millions of Dollars, Except Per Share Amounts)
CONDENSED STATEMENTS OF EARNINGS
                                Three Months                                                                                                                                      Nine Months
                                2016                                 2015                                 % Change                          2016                                 2015                                 % Change
Net sales                                          $      2,833      $      2,420      17.1       %                      $      8,168      $      7,231      13.0       %
Cost of sales                                      960               796               20.6           2,759             2,449             12.7        
Gross profit                                       $      1,873      $      1,624      15.3       %                      $      5,409      $      4,782      13.1       %
% of sales                                         66.1          %                      67.1          %                                     66.2          %                      66.1          %                       
Research, development and engineering expenses     184               155               18.7           526               461               14.1        
Selling, general and administrative expenses       1,057             887               19.2           3,044             2,640             15.3        
Recall charges                                     57                150               (62.0      )                      104               316               (67.1      )
Intangible asset amortization                      89                54                64.8           230               152               51.3        
Total operating expenses                           $      1,387      $      1,246      11.3       %                      $      3,904      $      3,569      9.4        %
Operating income                                   486               378               28.6           1,505             1,213             24.1        
% of sales                                         17.2          %                      15.6          %                                     18.4          %                      16.8          %                       
Other income (expense), net                        (67           )                      (33           )                      103.0          (172          )                      (90           )                      91.1        
Earnings before income taxes                       $      419        $      345        21.4       %                      $      1,333      $      1,123      18.7       %
Income taxes                                       64                44                45.5           196               206               (4.9       )
Net earnings                                       $      355        $      301        17.9       %                      $      1,137      $      917        24.0       %
Net earnings per share of common stock:                                                                                                    
Basic                                              $      0.95       $      0.80       18.8       %                      $      3.04       $      2.43       25.1       %
Diluted                                            $      0.94       $      0.79       19.0       %                      $      3.01       $      2.40       25.4       %
Weighted-average shares outstanding - in millions:                                                                                         
Basic                                              374.4                                376.3                                               373.9                                377.4                                 
Diluted                                            379.0                                380.7                                               378.3                                381.8                                 
CONDENSED BALANCE SHEETS
                          September 30                         December 31
                          2016                                 2015
ASSETS                                                          
Cash and cash equivalents                    $      2,953      $      3,379   
Marketable securities                        69                700            
Accounts receivable, net                     1,803             1,662          
Inventories                                  2,092             1,639          
Other current assets                         449               563            
Total current assets                         $      7,366      $      7,943   
Property, plant and equipment, net           1,505             1,199          
Goodwill and other intangibles, net          10,083            5,930          
Other noncurrent assets                      1,233             1,151          
Total assets                                 $      20,187     $      16,223  
LIABILITIES AND SHAREHOLDERS’ EQUITY                            
Current liabilities                          $      2,423      $      2,808   
Accrued recall expenses                      603               694            
Other noncurrent liabilities                 1,116             980            
Long-term debt, excluding current maturities 6,713             3,230          
Shareholders’ equity                         9,332             8,511          
Total liabilities and shareholders’ equity   $      20,187     $      16,223  
CONDENSED STATEMENTS OF CASH FLOWS
                                          Nine Months
                                          2016                                 2015
Operating activities                                                            
Net earnings                                                 $      1,137      $      917     
Depreciation                                                 165               137            
Amortization of intangible assets                            230               152            
Changes in operating assets and liabilities and other, net   (368          )                      (978          )
Net cash provided by operating activities                    $      1,164      $      228     
Investing activities                                                            
Acquisitions, net of cash acquired                           $      (4,296 )                      $      (140   )
Change in marketable securities, net                         633               2,872          
Purchases of property, plant and equipment                   (347          )                      (191          )
Other investing, net                                         (4            )                      -              
Net cash (used in) provided by investing activities          $      (4,014 )                      $      2,541   
Financing activities                                                            
Borrowings/repayments of debt, net                           $      2,818      $      (501   )
Dividends paid                                               (426          )                      (391          )
Repurchase of common stock                                   (13           )                      (446          )
Other financing                                              24                36             
Net cash provided by (used in) financing activities          $      2,403      $      (1,302 )
Effect of exchange rate changes on cash and cash equivalents 21                (99           )
Change in cash and cash equivalents                          $      (426   )                      $      1,368   
STRYKER CORPORATION
For the Three and Nine Months Ended September 30
(Unaudited - Millions of Dollars)
CONDENSED NET SALES ANALYSIS
       Three Months                                                                                                                            Nine Months
                                       % Change                                                                                          % Change
       2016                               2015                               As Reported                     Constant Currency                 2016                               2015                               As Reported                     Constant Currency
Geographic:                                                                                                                         
United States             $      2,111    $      1,756    17.0       %                    17.0       %                      $      6,043    $      5,145    15.1       %                    15.1       %
International             722             664             17.3         16.0           2,125           2,086           7.7          9.0         
Total                     $      2,833    $      2,420    17.1       %                    16.7       %                      $      8,168    $      7,231    13.0       %                    13.3       %
Segment:                                                                                                                            
Orthopaedics              $      1,077    $      1,019    5.6        %                    5.3        %                      $      3,216    $      3,077    4.5        %                    4.9        %
MedSurg                   1,253           943             33.0         33.0           3,469           2,809           23.5         24.0        
Neurotechnology and Spine 503             458             9.7          8.7            1,483           1,345           10.3         10.2        
Total                     $      2,833    $      2,420    17.1       %                    16.7       %                      $      8,168    $      7,231    13.0       %                    13.3       %
SUPPLEMENTAL NET SALES GROWTH ANALYSIS
             Three Months
                                               Percentage Change
                                                                                              United States                     International
             2016                               2015                                 As Reported                     Constant Currency                 As Reported                       As Reported                     Constant Currency
Orthopaedics:                                                                                                              
Knees                           $      354      $      332        6.5        %                    6.3        %                      5.4        %                      9.6        %                    8.9        %
Hips                            310             307               0.9          1.0            0.7            1.4          1.5         
Trauma and Extremities          343             318               7.7          6.9            6.9            9.0          6.8         
Other                           70              62                13.7         13.2           9.8            31.8         28.8        
Total Orthopaedics              $      1,077    $      1,019      5.6        %                    5.3        %                      4.8        %                      7.3        %                    6.3        %
MedSurg:                                                                                                                   
Instruments                     $      380      $      359        6.1        %                    6.0        %                      5.2        %                      9.4        %                    8.7        %
Endoscopy                       364             336               8.6          8.5            10.4           3.4          2.9         
Medical                         450             195               131.1        131.5          121.4          177.4        179.6       
Sustainability                  59              53                10.3         10.3           10.3           21.1         20.7        
Total MedSurg                   $      1,253    $      943        33.0       %                    33.0       %                      32.3       %                      35.8       %                    35.8       %
Neurotechnology and Spine:                                                                                                 
Neurotechnology                 $      311      $      275        13.1       %                    11.7       %                      9.1        %                      21.0       %                    16.7       %
Spine                           192             183               4.6          4.2            5.0            3.3          1.6         
Total Neurotechnology and Spine $      503      $      458        9.7        %                    8.7        %                      7.4        %                      15.1       %                    11.7       %
Total                           $      2,833    $      2,420      17.1       %                    16.7       %                      17.0       %                      17.3       %                    16.0       %
             Nine Months
                                               Percentage Change
                                                                           United States                     International
             2016                               2015                                 As Reported                     Constant Currency                 As Reported                       As Reported                     Constant Currency
Orthopaedics:                                                                                                              
Knees                           $      1,085    $      1,023      6.0        %                    6.5        %                      7.1        %                      3.1        %                    5.0        %
Hips                            949             939               1.1          1.9            2.1            (0.5       )                    1.5         
Trauma and Extremities          998             940               6.1          6.1            9.1            1.5          1.3         
Other                           184             175               5.3          5.6            6.2            1.7          3.3         
Total Orthopaedics              $      3,216    $      3,077      4.5        %                    4.9        %                      6.2        %                      1.2        %                    2.5        %
MedSurg:                                                                                                                   
Instruments                     $      1,122    $      1,059      6.0        %                    6.4        %                      7.7        %                      0.5        %                    2.3        %
Endoscopy                       1,049           992               5.8          6.3            10.0           (6.4       )                    (4.4       )
Medical                         1,122           597               87.9         88.8           82.5           111.8        116.4       
Sustainability                  176             161               9.2          9.2            9.1            17.5         22.9        
Total MedSurg                   $      3,469    $      2,809      23.5       %                    24.0       %                      25.2       %                      17.7       %                    20.0       %
Neurotechnology and Spine:                                                                                                 
Neurotechnology                 $      924      $      799        15.7       %                    15.5       %                      15.1       %                      17.0       %                    16.3       %
Spine                           559             546               2.3          2.4            5.2            (6.0       )                    (5.6       )
Total Neurotechnology and Spine $      1,483    $      1,345      10.3       %                    10.2       %                      10.8       %                      9.2        %                    8.9        %
Total                           $      8,168    $      7,231      13.0       %                    13.3       %                      15.1       %                      7.7        %                    9.0        %

SUPPLEMENTAL INFORMATION - RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

We supplement the reporting of our financial information determined under accounting principles generally accepted in the United States (GAAP) with certain non-GAAP financial measures, including percentage sales growth in constant currency; percentage organic sales growth; adjusted gross profit; adjusted selling, general and administrative expenses; adjusted operating income; adjusted effective income tax rate; adjusted net earnings; and adjusted net earnings per diluted share. We believe that these non-GAAP measures provide meaningful information to assist shareholders in understanding our financial results and assessing our prospects for future performance. Management believes percentage sales growth in constant currency and the other adjusted measures described above are important indicators of our operations because they exclude items that may not be indicative of or are unrelated to our core operating results and provide a baseline for analyzing trends in our underlying businesses. Management uses these non-GAAP financial measures for reviewing the operating results of reportable business segments and analyzing potential future business trends in connection with our budget process and bases certain management incentive compensation on these non-GAAP financial measures.

To measure percentage sales growth in constant currency, we remove the impact of changes in foreign currency exchange rates that affect the comparability and trend of sales. Percentage sales growth in constant currency is calculated by translating current year results at prior year average foreign currency exchange rates. To measure percentage organic sales growth, we remove the impact of changes in foreign currency exchange rates and acquisitions that affect the comparability and trend of sales. Percentage organic sales growth is calculated by translating current year results at prior year average foreign currency exchange rates excluding the impact of acquisitions. To measure earnings performance on a consistent and comparable basis, we exclude certain items that affect the comparability of operating results and the trend of earnings.

Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for reported sales growth, gross profit, selling, general and administrative expenses, operating income, effective income tax rate, net earnings and net earnings per diluted share, the most directly comparable GAAP financial measures. These non-GAAP financial measures are an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures below, provide a more complete understanding of our business. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

STRYKER CORPORATION
For the Three and Nine Months September 30
(Unaudited - Millions of Dollars, Except Per Share Amounts)
RECONCILIATION OF ACTUAL RESULTS TO ADJUSTED RESULTS
Three Months 2016                                Gross Profit                       Selling, General & Administrative Expenses         Intangible Amortization              Operating Income                   Net Earnings                       Effective Tax Rate              Diluted EPS
Reported                                         $      1,873    $              1,057            $       89        $      486      $      355      15.2       %                    $      0.94    
Acquisition and integration related charges: (a)                                                                                                                 
Inventory stepped up to fair value               2               -                               -                 2               1               0.2          -              
Other acquisition and integration related        -               (47                           )                    -                 47              44              (1.2       )                    0.12           
Amortization of purchased intangible assets      -               -                               (89             )                    89              62              2.7          0.16           
Restructuring-related charges (b)                2               (23                           )                    -                 25              20              0.1          0.05           
Rejuvenate and other recall matters (c)          -               -                               -                 57              44              0.5          0.12           
Adjusted                                         $      1,877    $              987              $       -         $      706      $      526      17.5       %                    $      1.39    
Three Months 2015                                Gross Profit                       Selling, General & Administrative Expenses         Intangible Amortization              Operating Income                   Net Earnings                       Effective Tax Rate              Diluted EPS
Reported                                         $      1,624    $              887              $       54        $      378      $      301      12.8       %                    $      0.79    
Acquisition and integration related charges: (a)                                                                                                                 
Inventory stepped up to fair value               (6            )                    -                               -                 (6            )                    (4            )                    (0.3       )                    (0.01         )
Other acquisition and integration related        -               (5                            )                    -                 5               5               (0.2       )                    0.01           
Amortization of purchased intangible assets      -               -                               (54             )                    54              38              2.1          0.12           
Restructuring-related charges (b)                2               (20                           )                    -                 22              15              0.3          0.04           
Rejuvenate and other recall matters (c)          -               -                               -                 150             127             0.3          0.32           
Tax Matters                                      -               -                               -                 -               (6            )                    1.4          (0.02         )
Adjusted                                         $      1,620    $              862              $       -         $      603      $      476      16.4       %                    $      1.25    
Nine Months 2016                                 Gross Profit                       Selling, General & Administrative Expenses         Intangible Amortization              Operating Income                   Net Earnings                       Effective Tax Rate              Diluted EPS
Reported                                         $      5,409    $              3,044            $       230       $      1,505    $      1,137    14.7       %                    $      3.01    
Acquisition and integration related charges: (a)                                                                                                                 
Inventory stepped up to fair value               37              -                               -                 37              23              0.6          0.06           
Other acquisition and integration related        -               (83                           )                    -                 83              69              -            0.19           
Amortization of purchased intangible assets      -               -                               (230            )                    230             160             2.2          0.42           
Restructuring-related charges (b)                7               (60                           )                    -                 67              54              0.1          0.14           
Rejuvenate and other recall matters (c)          -               -                               -                 104             83              0.1          0.22           
Legal matters (d)                                -               12                              -                 (12           )                    (7            )                    (0.2       )                    (0.02         )
Adjusted                                         $      5,453    $              2,913            $       -         $      2,014    $      1,519    17.5       %                    $      4.02    
Nine Months 2015                                 Gross Profit                       Selling, General & Administrative Expenses         Intangible Amortization              Operating Income                   Net Earnings                       Effective Tax Rate              Diluted EPS
Reported                                         $      4,782    $              2,640            $       152       $      1,213    $      917      18.3       %                    $      2.40    
Acquisition and integration related charges: (a)                                                                                                                 
Inventory stepped up to fair value               7               -                               -                 7               4               0.2          0.01           
Other acquisition and integration related        -               (24                           )                    -                 24              18              0.2          0.05           
Amortization of purchased intangible assets      -               -                               (152            )                    152             107             1.6          0.30           
Restructuring-related charges (b)                4               (74                           )                    -                 78              58              0.3          0.15           
Rejuvenate and other recall matters (c)          -               -                               -                 316             222             3.8          0.57           
Legal matters (d)                                -               53                              -                 (53           )                    (46           )                    0.2          (0.12         )
Tax Matters (e)                                  -               -                               -                 -               78              (7.0       )                    0.20           
Adjusted                                         $      4,793    $              2,595            $       -         $      1,737    $      1,358    17.6       %                    $      3.56    
(a) Charges represent certain acquisition and integration related costs associated with acquisitions.
(b) Charges represent the cost associated with certain restructuring-related charges associated with workforce reductions, facility rationalizations and other restructuring-related activities.
(c) Charges represent changes in our best estimate of the minimum end of the range of probable loss to resolve the Rejuvenate and ABG II recall and other recall matters.
(d) Amount represents a gain associated with a legal settlement in 2016 and 2015.
(e) Charges represent the tax impacts related to certain discrete tax items and the establishment of the European regional headquarters in 2015.
STRYKER CORPORATION
For the Three Months and Full Year December 31, 2016
RECONCILIATION OF EXPECTED NET EARNINGS PER DILUTED SHARE TO EXPECTED ADJUSTED NET EARNINGS PER DILUTED SHARE
                         Three Months                                                                Full Year
                         Low                                  High                                   Low                                  High
Expected - Reported                         $       1.41      $       1.62        $       4.42      $       4.63     
Acquisition and integration related charges 0.11              -                   0.36              0.25             
Amortization of purchased intangible assets 0.16              0.16                0.58              0.58             
Restructuring-related charges               0.05              -                   0.19              0.14             
Rejuvenate and other recall matters         -                 -                   0.22              0.22             
Legal matters                               -                 -                   (0.02           )                    (0.02           )
Expected - Adjusted                         $       1.73      $       1.78        $       5.75      $       5.80     

This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.

The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.

Source: Stryker Corporation via Globenewswire



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