2nd UPDATE: Stryker 2Q Earnings Up 9.5%; Slow Hip/Knee Sales
July 20 2010 - 6:38PM
Dow Jones News
Stryker Corp.'s (SYK) second-quarter earnings rose 9.5% behind
surging sales in the company's hospital-products unit, but
replacement hip and knee sales barely edged higher as Stryker waits
for new products to take off and rides out some disruptions
overseas.
Overall sales missed Wall Street expectations due to the weak
orthopedic implant results, but the Kalamazoo, Mich., company still
maintained its full-year forecasts for both sales and per-share
earnings growth.
The sluggishness among replacement joints came on the heels of
Johnson & Johnson's (JNJ) report early Tuesday that showed
decelerated hip and knee growth in its DePuy franchise--a major
Stryker competitor--compared with first-quarter growth. J&J
also cited continued pressure on product prices.
While smaller rival Biomet indicated favorable trends in its
recent fiscal quarter report, which ran through May, Tuesday's
reports suggested that an orthopedics market vulnerable to patients
deferring surgery when economic times are tight could be hitting
speed bumps again. The market has been working its way back from a
slowdown in U.S. procedures during the recession.
"Maybe the recovery has kind of stalled out a bit," said Derrick
Sung, a Sanford Bernstein analyst. "It does look like the hip and
knee market surprisingly slowed down."
Stryker shares declined 3.5% to $49.50 in after-hours trading
Tuesday. Shares of rival Zimmer Holdings Inc. (ZMH), where
replacement-joint sales are a higher portion of revenue, fell 3.3%
to $53.30.
Stephen P. MacMillan, Stryker's chairman and chief executive,
acknowledged that "headline numbers" may fan worries about the
market's health, but he said Stryker isn't that concerned. The
company pointed to some company-specific issues it expects to
resolve in coming quarters, such as the fact some new hip products
haven't had a big impact yet. Additionally, the company is still
feeling the effects from some late 2009 restructuring moves in
Europe, where it discontinued certain products and also terminated
some distributors.
"I think we feel better than the numbers for this particular
quarter suggest," and feel good about longer-term trends, MacMillan
said on a conference call.
With the anniversary of the European distributor and product
moves coming up, "we are confident in improving performance," Chief
Financial Officer Curt Hartman added during the call.
In the latest quarter, Stryker posted a profit of $319 million,
or 80 cents a share, up from $291.3 million, or 73 cents a share, a
year earlier. Sales grew 7.6% to $1.76 billion, or 6.9% excluding
currency changes.
Analysts surveyed by Thomson Reuters expected a profit of 80
cents on revenue of $1.78 billion.
Gross margin rose to 69.3% from 67.2%.
Sales in the MedSurg business jumped 16%, marking a continued
rebound from a lull caused by hospitals cutting back on purchases
of items like beds and stretchers due to the weakened economy. But
sales of orthopedic implants rose just 2.2%. A gain of 1.4%
excluding a modest favorable currency impact compares with an RBC
Capital Markets Forecast for about 7% growth in the quarter.
MacMillan said the company was particularly pleased with MedSurg
results. "On the flip side, our reconstructive implants business
was below our expectations in the quarter," he said during the
call. He added that Stryker's international business struggled more
than expected.
He also called a low single-digit increase in U.S. implant sales
"discouraging," and that the market looks a little softer, although
he's not concerned about market problems.
Stryker continued to forecast that sales will increase by 5% to
8% this year, excluding the impact of currency. It also continues
to forecast earnings of $3.20 to $3.30 a share.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728;
jon.kamp@dowjones.com
(John Kell contributed to this article.)
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