Stryker's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Stryker (SYK)

Q1 2012 Earnings Call

April 17, 2012 4:30 pm ET


Curt R. Hartman - Interim Chief Executive Officer, Chief Financial Officer and Vice President

Katherine A. Owen - Vice President of Strategy & Investor Relations


Robert A. Hopkins - BofA Merrill Lynch, Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

Michael Matson - Mizuho Securities USA Inc., Research Division

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Larry Biegelsen - Wells Fargo Securities, LLC, Research Division

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Steve Beuchaw - Morgan Stanley, Research Division

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Bruce M. Nudell - Crédit Suisse AG, Research Division

Richard Newitter - Leerink Swann LLC, Research Division

Rajeev Jashnani - UBS Investment Bank, Research Division

Matthew Taylor - Barclays Capital, Research Division

Joshua T. Jennings - Cowen and Company, LLC, Research Division

Jason Wittes - Caris & Company, Inc., Research Division

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

William J. Plovanic - Canaccord Genuity, Research Division

David H. Roman - Goldman Sachs Group Inc., Research Division

Joanne K. Wuensch - BMO Capital Markets U.S.



Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Stryker Earnings Conference Call. My name is Derek, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to take the time and read the Safe Harbor statement.

Certain statements made in this presentation may contain 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 the company's 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 the company's products; pricing pressures generally, including cost containment measures that could adversely affect the price of or demand for the company's 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 payers; a significant increase in product liability claims; resolution of tax audits; changes in financial markets; changes in the competitive environment; the company's ability to integrate acquisitions; and the company's ability to realize anticipated cost savings as a result of workforce reductions and other restructuring activities.

Additional information concerning these and other factors are contained in the company filings with the U.S. Securities and Exchange Commission, including the company's annual report on Form 10-K and quarterly reports on Form 10-Q.

I would now like to turn the call over to Mr. Curt Hartman, interim Chief Executive Officer and Vice President and Chief Financial Officer. Please proceed, sir.

Curt R. Hartman

Thank you, Derek. Good afternoon, everyone, and welcome to Stryker's first quarter 2012 earnings report. Joining me on the call is Katherine Owen, Vice President Strategy and Investor Relations. In terms of the format for today's call, I will provide opening comments and then turn the call over to Katherine for an update on several key focus items. I will then cover the financials before opening the call up to your questions.

Consistent with previous quarters, our press release contains additional detail that we encourage you to review relating to our quarterly performance.

On that note, first quarter sales finished at $2.16 billion, up 7.2% as reported and 7.4% in constant currency. As shown in the supplemental sales chart in the press release, it is clear that our revenue growth was balanced, both by segment and geography.

The quarterly and year-over-year increase in our Reconstructive segment sales augmented continued strength in MedSurg and a solid showing from Neurotechnology and Spine. The balanced revenue growth reinforces our conviction in the benefits provided by our diverse offering, supported by a strategy of internal innovation and focused acquisition. More specifically, our Reconstructive results were led by a solid sequential and year-over-year acceleration in both hip and knee implants.

Within MedSurg, instruments delivered strong growth of over 10%, fueled by the launch of our System 7 power tools, and our Sustainability Solutions business delivered another solid, high-growth quarter.

Finally, within Neurotechnology and Spine, solid gains from Interventional Spine, Neurovascular, and Neuro, Spine and ENT were partially offset by continued challenge in our spinal hardware segment.

Overall, sales excluding currency and acquisitions posted an increase of 5.2% in Q1 versus our 2% to 5% expectation for the full year.

With these sales results, our adjusted per-share earnings increased 10% to $0.99. The 10% adjusted earnings per share increase is in line with our target for double-digit per-share earnings growth. Additionally, this performance includes absorbing roughly $0.015 per share of onetime SG&A expense associated with the previously disclosed separation agreement.

Finally, I'll provide an update regarding the board's search for a permanent CEO. As stated previously, the board, in conjunction with an outside search firm, is conducting a comprehensive and thorough search of both internal and external candidates. That process is ongoing, and although the timing of an announcement is impossible to predict, the board is comfortable with the pace of the review.

In the interim, as our Q1 results reflect, we remain focused on executing our strategic objectives and delivering on our financial commitments. The results of these efforts underscore the collective strength of this company, which includes our global offering of products and services, our dedicated employees and the strength we have built with our customers and markets.

With that, I'll turn the call over to Katherine.

Katherine A. Owen

Thanks, Curt. There are 4 key topics where I will try and provide some additional details, including hip and knee pricing and elective procedure trends, an acquisition integration update, our Global Quality and Operations initiatives and an update regarding key new product launches.

Starting with pricing. In an attempt to provide greater granularity by our key segments and to help facilitate your modeling, the press release includes a breakdown of our sales growth by volume, mix and price for our 3 key business segments: reunion -- excuse me, Reconstructive, MedSurg and Neurotechnology and Spine. As it relates to our hip and knee pricing trend, during Q1, U.S. pricing remained negative in the low single-digits and was largely offset by favorable mix, particularly within our hip segment. Although the overall trend improved again this quarter, our forecasts do not assume a meaningful change in the pricing environment, and we continue to assume pricing as modestly negative and partly offset by mix.

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