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. Alongside its customers
around the world, Stryker impacts more than 100 million patients annually.
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 and Macroeconomic Environment
The COVID-19 global pandemic and macroeconomic environment has led to severe
disruptions in the market and the global and United States economies that may
continue for a prolonged period. In response to the COVID-19 pandemic, various
governmental authorities and private enterprises have implemented numerous
containment measures, 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. This has led to product
shortages and an increase in raw material and component pricing as well as other
inflationary pressures particularly on our manufacturing costs.
During the quarter we have seen recovery of elective procedures as the impact of
the COVID-19 pandemic has subsided in many geographies, with the exception of
some countries in the Asia Pacific region. However sales growth in certain
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 six months 2022 net
sales in Russia were approximately 0.2% 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" in our Quarterly Report on Form 10-Q for the quarter ended March 31,
2022 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; however, the national spine
products VBP program was initiated in July 2022. China has also issued national
guiding standards for Import Purchase Evaluation 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 2.6% of our revenues for the six months 2022.
Overview of the Three and Six Months
In the three months 2022 we achieved sales growth of 4.6% from 2021. Excluding
the impact of acquisitions and divestitures sales grew 6.1% in constant
currency. We reported operating income margin of 17.2%, net earnings of $656 and
net earnings per diluted share of $1.72. Excluding the impact of certain items,
adjusted operating income margin(1) contracted by 220 basis points to 23.7%,
with adjusted net earnings(1) of $860 and adjusted net earnings per diluted
share(1) of $2.25 in line with 2021.
In the six months 2022 we achieved sales growth of 6.3% from 2021. Excluding the
impact of acquisitions and divestitures sales grew 7.6% in constant currency. We
reported operating income margin of 13.9%, net earnings of $979 and net earnings
per diluted share of $2.56. Excluding the impact of certain items, adjusted
operating income margin(1) contracted by 190 basis points to 22.8%, with
adjusted net earnings(1) of $1,612 and adjusted net earnings per diluted
share(1) of $4.22 representing growth of 1.0%.
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 June 2022 we repaid $250 of this
term loan.
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.
(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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