The company reported a 77% drop in profits amid a 5.3% increase in sales during the 3 months ended March 31. Excluding special charges, including about $344 million that the company set aside for recall-related issues, adjusted per-share earnings amounted to $1.06, 2¢ shy of Wall Street’s consensus estimate.
In total the company posted profits of $70 million, or 18¢ per diluted share, on sales of $2.31 billion during its 1st quarter. That compared with profits of $304 million, or 79¢ per share, on sales of $2.19 billion during the same period last year.
Profits were impacted primarily by charges associated with recalls of the Rejuvenate/ABG II modular-neck hip implants and the Neptune Waste Management System, Stryker said.
The company announced the hip implant recalls in July 2012, saying the Rejuvenate and ABG II 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. Stryker said last fall that those recalls may end up costing the company between $700 million and $1.13 billion in total.
In June 2012 Stryker yanked its Neptune surgical waste management device after receiving reports of serious injuries and 1 death.
Other chunks of Stryker’s earnings went to "acquisition and integration related charges, additional cost of sales for inventory sold that was "stepped up" to fair value related to acquisitions, restructuring and related charges, certain charges related to legal and regulatory matters and charges associated with the resolution of certain tax matters," the company said.
Reported net earnings include charges for the Rejuvenate, ABG II and Neptune recalls, acquisition and integration related charges, additional cost of sales for inventory sold that was "stepped up" to fair value related to acquisitions, restructuring and related charges, certain charges related to legal and regulatory matters and charges associated with the resolution of certain tax matters
Stryker’s outlook for the year remained the same, with expected sales growth in the range of 4.5% to 6.0% with adjusted diluted net earnings per share projected between $4.75 to $4.90.
Shares dropped 0.4% by the end of the day today, closing at $78.39, and dropped another 0.5% to $78.02 in after-hours trading as of about 4:35 p.m. EST.