Stryker Corp Reports 21% Sales Rise in 4th quarter
BY JOHN CHOPACK, FEBRUARY 2, 2004
Stryker (SYK) reported that revenues totaled $1.1 billion in 4Q:03 and $3.63 billion for the full year 2003. This represented a 21% and a 20% increase over the respective periods last year. The increase in revenues helped drive a 27% increase in EPS which totaled $0.66 over the 4Q:02. Earnings for the full year 2003 totaled $454 million which was 31% above 2002.
Key drivers were:
- Trident Ceramic-on-Ceramic Revenues now represent approximately 30% of all acetabular insert sales. The technology was the clear driver of a 26% increase in domestic hip sales during the 4Q:03. Although management isn't clear on what percentage of total acetabular inserts Ceramic-on-Ceramic may ultimately represent, we believe it is likely that Trident sales will remain a dominant revenue driver throughout 2004.
- Foreign Currency Translation represented approximately 6% of the 21% increase in revenues during 4Q:03 and 5% of the 20% increase in revenues for the year-end 2003. More specifically, orthopedic implants were favorably impacted by currency by 7% during both the 4Q:03 and full-year 2003. During the 4Q:03, the Euro strengthened by 20% and the yen by 11% against the dollar compared against the prior year.
Orthopedic Implant revenues totaled $574.4 million for the 4Q:03 and $2,093 million for all of 2003. This was a 21% and 23% increase respectively. The 4Q:03 also represented the sixth consecutive quarter in which Orthopedic Implant sales exceeded a 20% growth rate. However, favorable foreign currency dramatically effected revenue growth for the segment. On a constant currency basis Orthopedic Implants increased respectively 14% and 16% for the 4Q:03 and full-year 2003. The 14% growth during the 4Q:03 is both below the 16% full year growth rate as well as our estimated market growth rate of 16%. This may indicate a potential slowing orthopedic market.
One of the clear financial highlights for Stryker during 2003 was that it reduced long-term debt by $472 million from $491 million to $18 million. This lowered interest expense from $40 million in 2002 to $9 million in 2003. Free cash flow (operating cash flow less capital expenditures) reached $504 million in 2003. Free cash flow was 14% of revenues. Effectively, $0.14 of every dollar of revenue can be used at the discretion of management. It is clear that the goal was to utilize cash to reduce debt during 2003. (Don't be shocked if the plan for 2004 is to use free cash for strategic business development.)
A market concern mentioned in the SYK conference call is Japanese Pricing Environment, which is expected to be unfavorable in 2004. In fact, SYK management expects that implant pricing is likely to decrease by 4-6% during this year. Although this cannot be overlooked, it is important to keep in mind that up until recently, Japan has been among the most favorable pricing environment in the world. It is our opinion that pricing in Japan will move closer to U.S. levels.
