UPDATE:Stryker 2Q Earnings Up 9.5%; Slow Replacement Joint Sales
July 20 2010 - 5:50PM
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 sales, but the Kalamazoo, Mich., company still
maintained its full-year forecasts for both sales and per-share
earnings growth.
Stryker shares declined 2.7% to $49.90 in after-hours trading
Tuesday, while orthopedics rival Zimmer Holdings Inc. (ZMH) slipped
2.1% to $54.
Stephen P. MacMillan, Stryker's chairman and chief executive,
said the company was particularly pleased with sales across the
company's Medsurg business, which includes hospital and surgical
supplies. "On the flip side, our reconstructive implants business
was below our expectations in the quarter," he said during a
conference call with analysts. 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, but said
he's not concerned about market problems.
Instead, Stryker 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.
With the anniversary of those changes coming up, "we are
confident in improving performance," Chief Financial Officer Curt
Hartman said 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.
Small rival Biomet Inc. (BMET) recently issued fiscal-quarter
results that suggested the orthopedics market continues to rebound
from a recession-induced lull, but Johnson & Johnson (JNJ)
indicated earlier Tuesday that the sector remains under pressure
from declining product prices.
MacMillan acknowledged that "headline numbers" may fan worries
about the health of the hip and knee markets, but he said Stryker
isn't that concerned. He said it takes a while for new products to
take hold, and that the overall market was "ever-so-slightly slower
in the quarter."
"I think we feel better than the numbers for this particular
quarter suggest," and feel good about longer-term trends, he
added.
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 report).
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