Stryker shrugs off recall charges in Q4 to end 2012 on target

Stryker

Orthopedic giant Stryker (NYSE:SYK) reported a nearly 33% drop in net income for the 4th quarter on expected charges related to the Rejuvenate and ABG II modular-neck hip stems recall but the company managed to end 2012 strong.

The Kalamazoo, Mich.-based medical device company reported net income of $270 million, or 71¢ per share, on $2.34 billion in sales during the last 3 months of the year, a dramatic drop from the $401 million profit on $2.21 billion in sales the company reported during the same period in 2011.

Excluding the $133 million recall charge, Stryker’s Q4 profits jumped 12% to about $1.14 in adjusted earnings per share, beating analysts’ expectations, which were in the $1.11-$1.13 range.

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Stryker reported sales increases across all 3 product categories during the 4th quarter, including a 7% increase in its reconstructive unit, which includes hips, knees, trauma and extremities; a 2% increase in its MedSurg division; and a 10% increase in its neurotechnology and spine division.

For the full year of 2012 Stryker reported a $1.29 billion profit, or $3.39 per share, on $8.65 billion in sales, a 3.5% decrease from the $1.34 billion, or $3.45 per share, on $8.30 billion in sales. The company also saw a 3% increase in its reconstructive and MedSurg units and a 9% jump in neurotechnology and spine.

Wall Street reacted positively to Stryker’s report, sending shares of the company up nearly 2% to $63.08 through midday trading. Leerink Swann analyst Richard Newitter said the earnings report contained "no major surprises."

"We come away from SYK’s full 4Q results and conference call reinforced in our view that: (1) under new leadership SYK is taking the right steps to drive improved performance, over time, in key OUS markets, (2) new product cycles and improved execution across all 3 reporting divisions should help support SYK’s growth at or above rates of most key end-markets, and (3) restructuring and prior compliance spending investments will drive increased operating leverage in 2013 and beyond," Newitter wrote.

Stryker in July announced a recall of a pair of hip implants over concerns that the devices may 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.

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