Stryker Corp. (NYSE:SYK) Reports 4Q:04 and 2004 Financials
BY JOHN CHOPACK, JANUARY 31, 2005
Stryker reported 4Q:04 revenues of $1.156 billion which was an increase of 15% on a reported basis over the 3Q:04. This was slightly below analyst expectations of $1.158 billion in revenues. Earnings for the 4Q:04 totaled $0.40 per diluted share which was a 21% increase over the prior quarter and in-line with analyst expectations.
2004 marked the first time the company surpassed $4.0 billion revenues, as revenues totaled $4.262 billion. This was an 18% increase over 2003. Earnings per diluted share totaled $1.43 excluding the impact of one time charges including the SpineCore acquisition. This is a 29% increase over the 2003.
Revenue contribution from pure price increases declined from 2% during the 3Q:04 to 1% of the 15% net revenue increase in the 4Q:04. Unit/Product Mix contributed 11% and Foreign Currency contributed 3% of the 15% revenue increase during the 4Q:04; both of which were in-line with the 3Q:04.
Source: Company Reports
Some analysts questioned management about increased pricing pressure from hospital purchasing managers. Management did confirm that the pricing environment, in some business lines, is difficult as hospitals seek volume discounts. Two of which are the bone cement business as well as the ceramic hip business. Management indicated that it expects pricing increases of between 2-3% which seems in-line with the rest of the sector.
Orthopedic Implant revenues increased 14% on a reported basis and 11% excluding foreign currency during the 4Q:04. This compares to a 15% and 12% increase on a reported basis and constant currency basis, respectively for the 3Q:04. Growth in Hip revenues continued to slow during the 4Q:04 increasing 8% as reported and 5% excluding currency. This is down from the 11% increase as reported and 8% increase excluding currency that occurred during the 3Q:04. Growth in knee revenues also slowed during the 4Q:04. Knee revenues increased 10% on constant currency basis during the most recent quarter compared to an increase of 12% on a constant currency during the 3Q:04.
Management indicated that the slow down in the growth in hip revenues was primarily a result of difficult comparables to the 4Q:03. However, Stephen MacMillan, CEO of Stryker, also admitted that unit growth of revision and hip fracture procedures was flat to down. This was offset by high
Source: Company Reports
Single digit growth in U.S. primary hips. Additionally, when questioned about penetrating competitive accounts with its Trident ceramic-on-ceramic hip, management admitted that it did not convert as many competitive accounts as they would have liked.
On the knee side of the business management indicated that primary knee replacements continued to perform well, however, revision implants saw a slowdown. The company expects its knee business to see a jump start from broader launch of its Triathlon knee system. This system has only been available in a cruciate-retaining (CR), however, the FDA just approved a posterior-stabilized (PS) version.
Stryker saw strong growth in spine sales during the 4Q:04 which were driven by Reflex and Oasys cervical plates. Spine revenues increased by 19% as reported and 17% excluding currency during the most recent quarter. Management anticipates that the FlexiCore lumbar disk arthroplasty trial will complete enrollment during the 1Q:05 and the CerviCore cervical disk Investigational Device Exemption (IDE) is expected to be filed during the 1H:05. When asked about disc nucleus replacement and dynamic stabilization, management stated that it was looking at both internal and external business development opportunities and that both of these technologies will have a place in the spine market.
Management indicated that it anticipated revenue to total $4.9 billion during 2005 which was slightly lower than there previous guidance of $5.0 billion provided during the 3Q:04 conference call. However, they did increase the guidance for earnings-per-share from $1.72 to $1.74 per diluted share.
The close of 2004 marked the end of era at Stryker. Jon Brown has officially stepped down as CEO of the Company. He a final send off during the conference call giving his support to the current management team stating, "They are good. And I look forward to observing the victories of Steve and his team from a little different seat than the one I've occupied for the last 28 years. I wish them all the best as a Director, and I might add, as a shareholder".
