Stryker: Acquisitions helped boost top, bottom lines

Although it posted healthy sales and profit growth last year, Stryker Corp. (NYSE:SYK) was a penny shy of analysts’ forecasts for adjusted earnings per share, which usually sends investors into a selling spree.

But the Kalamazoo, Mich.-based device maker bucked the trend, as Wall Street sent SYK shares up 3.8%, to $54.94, in early-afternoon trading as of about 2 p.m. today.

Stryker posted $8.31 billion in sales for 2011, 13.5% more than the $7.32 billion it brought in during 2010.

Net earnings saw a 5.7% bump, to $1.35 billion, or $3.45 earned per diluted share, compared to $1.27 billion, or $3.19 per diluted share, in 2010.

Net earnings for 2011 included a $15 million fee the company paid earlier this month to settle charges of off-label marketing of a pair of bone-healing products.

Adjusted earnings hit nearly $1.45 billion, or $3.72 per share, representing an 11.7% bump from $3.33 in 2010. Analysts on The Street had forecast adjusted EPS of $3.73.

Although the company reported steady organic growth, much of the year’s progress came via strategic acquisitions. Mergers were responsible for 6.7% growth in Stryker’s net sales in 2011, according to SEC filings.

"Despite the challenging economic environment, our results for 2011 underscore the inherent strength afforded by our balanced diversification," chairman, president & CEO Stephen MacMillan said in prepared remarks. "We have built on the breadth of our sales footprint with the addition of several targeted acquisitions which further expand our product offering in the medical technology market."

Stryker struck deals costing $1.45 billion for Boston Scientific’s (NYSE:BSX) neurovascular business in Jan. 2011; $316 million for orthopedic biologics maker Orthovita Inc. (NSDQ: VITA) in May; $162 million for French alloy maker Memometal Technologies in June; and $135 million for stroke treatment device maker Concentric Medical in September.

Neurotechnology and spine sales spiked 47.3% to $377 million over the prior year, driven almost entirely by the acquisitions.

Increased until volume and changed product mixes made up for another 5.7% of net sales growth, including higher shipments of trauma, extremities and hip implant systems. Some of that growth was offset by lower shipments in knee and other implant systems.

Stryker’s MedSurg division grew 11.2%, to $857 million, on higher shipments of patient handling/emergency medical equipment, surgical and surgical navigation systems, endoscopic and communications systems, as well as through acquisitions.

"2011 was an extraordinarily busy year for both acquisitions and internal strengthening, which positions us well for 2012 and beyond while delivering in 2011," MacMillan said during a conference call. "We believe the myriad actions undertaken over the past few years have positioned us to not only navigate the challenges, but also maximize the opportunities. Today, no single franchise represents more than 16% of our total sales, which affords us the ability to offset weakness in some areas while capitalizing on the better-than-anticipated momentum in other segments."

For the 4th quarter, Stryker touted a 35.9% earnings spike, to $401 million ($1.05 per diluted share), compared to $295 million, or 74 cents per diluted share, during the same time last year. Part of the spike came from a $99 million adjustment to the company’s uncertain tax positions related to the Ireland cost-sharing settlement with the IRS.

Excluding 1-time items, net earnings for Q4 2011 were $390 million, a more modest 4.8% bump from the adjusted earnings of $372 million for the same time in 2010. Adjusted EPS were $1.01, a penny shy of analysts’ $1.02 consensus.

Net sales increased 11% to $2.22 billion, up from $1 billion in the 4th quarter of 2010.

Looking forward, Stryker expects adjusted EPS to grow at a double-digit clip in 2012; analysts set their estimates at $4.11.

Stryker predicted that diluted EPS will decrease by 22 cents in 2012, as it handles restructuring costs and related acquisition and integration-related charges.

"Looking ahead to 2012, we see significant opportunities to leverage the considerable investments we’ve made in recent years to improve our quality, differentiate our sales footprint and capitalize on areas of innovation that will drive improved outcomes for patients and caregivers," MacMillan said. "We remain steadfast in our commitment to maximizing shareholder returns through solid top line growth, leveraged earnings gains and optimized capital allocation which includes M&A, share repurchases and dividends."