ABOUT STRYKER
Stryker is one of the world's leading medical technology companies and, together
with our customers, we are driven to make healthcare better. We offer innovative
products and services in Medical and Surgical, Neurotechnology, Orthopaedics and
Spine that help improve patient and hospital outcomes.
We segregate our operations into two reportable business segments: (i) MedSurg
and Neurotechnology and (ii) Orthopaedics and Spine. MedSurg and Neurotechnology
products include surgical equipment and navigation systems (Instruments),
endoscopic and communications systems (Endoscopy), patient handling, emergency
medical equipment and intensive care disposable products (Medical), minimally
invasive products for the treatment of acute ischemic and hemorrhagic stroke
(Neurovascular), a comprehensive line of products for traditional brain and open
skull based surgical procedures; orthobiologic and biosurgery products,
including synthetic bone grafts and vertebral augmentation products (Neuro
Cranial) and other medical device products used in a variety of medical
specialties. Orthopaedics and Spine products consist primarily of implants used
in hip and knee joint replacements and trauma and extremity surgeries, and
cervical, thoracolumbar and interbody systems used in spinal injury, deformity
and degenerative therapies.
COVID-19 Pandemic
The COVID-19 global pandemic has led to severe disruptions in the market and the
global and United States economies that may continue for a prolonged duration
and trigger a recession or a period of economic slowdown. In response, various
governmental authorities and private enterprises have implemented numerous
measures to contain the pandemic, such as travel bans and restrictions,
quarantines, shelter-in-place orders and shutdowns. A significant number of our
global suppliers, vendors, distributors and manufacturing facilities are located
in regions that have been affected by the pandemic. Those operations have been
materially adversely affected by restrictive government and private enterprise
measures implemented in response to the pandemic.
Some of our products are particularly sensitive to reductions in elective
medical procedures. During the quarter we saw a partial recovery of elective
procedures and accelerated sales momentum as the impact of the COVID-19 pandemic
has eased in the United States and Europe; however, our sales growth in certain
of our products has been constrained by the continuing supply chain challenges
and electronic component shortages, especially impacting the capital products in
our MedSurg businesses.
Russia and Ukraine Conflict
The military conflict in Russia and Ukraine and the sanctions imposed by the
United States government and other nations in response to this conflict have
caused significant volatility and disruptions to the global markets. Given that
we provide life-saving and life-enhancing products, we plan to continue
operating in Russia provided we can safely do so. During the three months 2022
net sales in Russia were approximately 0.1% of our revenues. Although Russia
does not constitute a material portion of our business, there is uncertainty
around the impact it will have on the global economy, supply chains and fuel
prices generally, and therefore our business. Refer to Part II, Item 1A. "Risk
Factors" for further details.
China Volume-Based Procurement and Import Purchase Evaluation
The government in China has launched regional and national programs for
volume-based procurement ("VBP") of high-value medical consumables to reduce
healthcare costs. Each VBP program has specific requirements to award contracts
to the lowest bidders who are able to satisfy the quality and quantity
requirements. The successful bidders may be guaranteed sales volume for certain
products, while unsuccessful bidders may lose unit sales volume. The prices
required for a successful bid have negatively impacted our existing commercial
operations of joint replacement and trauma products in China. To date our other
businesses have not been significantly impacted, but may be in the future. We do
not expect any significant impairments related to further VBP programs. China
has also issued national guiding standards for Import Purchase Evaluation (IPE)
which has increased the purchase of locally sourced equipment in China's public
hospitals and is impacting our MedSurg business in China. Our business in China
represented approximately 2.5% of our revenues for the three months 2022.
Overview of the Three Months
In the three months 2022 we achieved sales growth of 8.1% from 2021. Excluding
the impact of acquisitions and divestitures sales grew 9.2% in constant
currency. We reported operating income margin of 10.5%, net earnings of $323 and
net earnings per diluted share of $0.84. Excluding the impact of certain items,
adjusted operating income margin(1) contracted by 170 basis points to 21.8%,
with adjusted net earnings(1) of $752 and adjusted net earnings per diluted
share(1) of $1.97 representing growth of 2.1%.
Recent Developments
In February 2022 we entered into a $1.5 billion term loan agreement that matures
on February 22, 2025 and bears interest at a base rate based on the Term Secured
Overnight Financing Rate (SOFR) plus 0.725%.
In February 2022 we completed the acquisition of Vocera Communications, Inc.
(Vocera) for $79.25 per share, or an aggregate purchase price of $2.6 billion,
net of cash acquired ($3.0 billion including convertible notes). Vocera is a
leader in the digital care coordination and communication category. Vocera is
part of our Medical business within MedSurg and Neurotechnology. Goodwill
attributable to the acquisition reflects the strategic benefits of expanding our
presence in adjacent markets, diversifying our product portfolio, advancing
innovations, and accelerating our digital aspirations. Refer to Note 7 to our
Consolidated Financial Statements for further information.
Effective April 1, 2022 our subsidiaries in Turkey will begin accounting for
their operations as highly inflationary, as required by United States Generally
Accepted Accounting Principles, as the cumulative three year inflation rate in
Turkey exceeded 100% in March 2022. We do not expect this change to have a
material impact on our Consolidated Financial Statements. During the three
months 2022 net sales in Turkey were less than 0.5% of our revenues.
(1) Refer to "Non-GAAP Financial Measures" for a discussion of non-GAAP
financial measures used in this report and a reconciliation to the most directly
comparable GAAP financial measure.
Dollar amounts are in millions except per share amounts or as otherwise
specified.
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