Stryker (NYSE:SYK) said the recall of some of its hip implant components and a U.S. Justice Dept. probe into its OtisKnee device helped push 1st-quarter profits down 13%, but still managed to beat Wall Street analysts’ expectations.
Kalamazoo, Mich.-based Stryker posted profits of $304 million, or 79¢ per share, on sales of $2.19 billion during the quarter, amounting to 1.3% sales growth.
Adjusted to exclude 1-time items including the $40 million hip recall charge and another, $40 million charge on the OtisKnee investigation, however, earnings per share reached $1.03, 2 pennies ahead of The Street.
Stryker said it’s now spent some $230 million on the Rejuvenate/ABG II recall. Last summer the company pulled the devices after discovering a potential trend in post-market surveillance data. The devices could be prone to "fretting and/or corrosion at or about the modular-neck junction," which may lead to pain, swelling and adverse reactions in surrounding tissue, Stryker said at the time.
Interim CFO Dean Bergy, who’s transitioning out to be replaced by ex-Dentsply International (NSDQ:XRAY) CFO Bill Jellison, told analysts during a conference call that another recall, of its Neptune surgical waste management system, will require a 510(k) submission to the FDA before it can be put back on the market. Sales for Stryker’s instruments segment took a $20 million hit during the quarter, Bergy said.
"As we work with FDA to address the requirements for the Neptune 510(k), we don’t think this regulatory clearance is likely to be achieved until late this year," he said, adding that the company posted a $40 million pre-tax charge "to increase reserves associated with the U.S. Department of Justice subpoena related to the OtisKnee device, and an SEC inquiry regarding possible violations of the Foreign Corrupt Practices Act."
A trio of acquisitions also pushed earnings down, Stryker said. The buyouts of Boston Scientific‘s (NYSE:BSX) neurovascular division, Chinese medical device company Trauson and Israeli stent maker Surpass combined for a $20 million charge during the quarter and pushed gross margins down by 5 basis points, including a 100-bp hit from a $23 million charge for the medical device tax.
"Looking ahead to the remainder of 2013, we remain focused on delivering on our financial targets, which includes top-line growth of 3% to 5.5%, excluding foreign exchange and acquisitions, and adjusted EPS of $4.25 to $4.40," president & CEO Kevin Lobo said during the earnings call.
SYK shares were up 1.8% to $65.88 apiece as of about 11:30 this morning.