Stryker Slogs Through First Quarter

Stryker Corporation’s 2014 first quarter reconstructive sales rose 4.5% to $999 million. On a constant currency basis, sales rose 5.9%. Analysts called the quarter “sluggish” as the company’s sales came in slightly below expectation.

During a conference call with analysts on April 23, 2014, company management cited the weather as a reason for the sluggish growth. Management expects that delayed procedures will be rescheduled throughout the year.

Knee sales rose only 1.1%, hips climbed 3.1%, and trauma was the bright spot, climbing 8.4%. Spine was relatively flat, rising only 0.7%.

The company’s net earnings took a 77% hit in the quarter due to charges for the Rejuvenate, ABG II and Neptune recalls, acquisition and integration related charges.

There was no change to the company’s previous guidance which calls for organic sales growth in 2014 to be in the range of 4.5% to 6.0%. If foreign currency exchange rates hold near current levels, the company expects net sales in the second quarter and full year of 2014 to be negatively impacted by less than 1.0%.

Knees Under Pressure

It was not great news for the company’s knee sales. Bank of America analyst Bob Hopkins wrote on April 24, 2014 that without the assumed contribution from MAKO Surgical Corporation’s knees, the company’s knee business would have declined 1% worldwide and 2.6% in the U.S. Management said that integration of MAKO affected knee sales. The company has begun its U.S. clinical trial for a total knee application for MAKO, which it intends to introduce in 2015.

It appears Stryker knee sales are under pressure from Zimmer’s Persona knee.

BMO Capital Market analyst Joanne Wuensch said Stryker spine sales decelerated from the mid-single-digit growth of the past three quarters, with implant sales down low-single digits. She added that management said it was “certainly open to looking at acquisitions within spine.”

Hip and Knee Market Forecasts

Wuensch forecasts the hip market to be up 2.7% in 2014, versus 3.3% in 2013, and the knee market to be up 3.0% in 2014, versus 3.75% in 2013. Jefferies analyst Raj Denhoy said it is now clear that U.S. recon volumes have normalized over the past few quarters and growth should remain sustainable in the mid-single digits. He cautioned that pricing remains a drag.

Stryker’s President and CEO Kevin Lobo said, “The strength of our diversified model was once again demonstrated in the first quarter with solid organic growth of 5%. Our continued investments in internal innovation, coupled with our recent acquisitions, position us well to meet our customers’ evolving needs.”