Stryker (NYSE:SYK) shares slipped about 3% on Wall Street this morning, despite strong 2nd-quarter numbers and reinforced guidance from the medical device maker.
The Kalamazoo, Mich.-based company posted profits of $325 million, or 85¢ per share, on sales of $2.11 billion for the 3 months ended June 30. That’s a bottom-line gain of 4.8% and a top-line addition of 2.9%.
Stryker also affirmed its sales and earnings guidance for the rest of the year, echoing its 4th- and 1st-quarter forecasts for sales growth of between 3.5% and 6.5% on a constant currency basis and of 2% to 5% excluding 1-time items. Adjusted EPS are expected to grow at double-digit levels compared with last year
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Investors on The Street were unimpressed, however, sending SYK shares down 2.4% to $52.30 apiece as of about noon today.
That might be due to the economic crisis in southern Europe. Interim CEO & CFO Curt Hartman, who’s been leading the company since Stephen MacMillan’s abrupt departure in February, said Stryker lost ground in the reconstructive joint surgery markets there.
"Southern Europe, specifically, was very, very slow for us in the reconstructive segment, hips and knees specifically. And I don’t think that’s unique to us," Hartman said during a conference call with analysts. "So Europe, again, it would be more Southern Europe. We saw good performance out of places like the U.K. But Southern Europe, we really had a shortcoming."
That’s in contrast to Johnson & Johnson (NYSE:JNJ) and Biomet Inc., according to Merrill Lynch analyst Robert Hopkins. Although Biomet reported preliminary results detailing an 8% decline in European sales during its fiscal 4th quarter, it didn’t give specifics on which European countries drove the slide. Johnson & Johnson’s orthopedics division was 1 of only 2 of its medical device segments to post sales gains during the 2nd quarter, jumping 10.8% to $1.63 billion.
"Obviously, we’ve seen J&J and Biomet and there wasn’t much commentary around significant weakness in Southern Europe," Hopkins said during the call. "Is it fair to characterize this shortfall in Europe, from your perspective, as the large majority of it being share loss by Stryker rather than a market issue, given what we’ve seen from J&J and Biomet?"
Hartman said the search for MacMillan’s replacement is still under way, but that Stryker’s board expects to name a permanent CEO before year’s end. The company’s plan to lay off 5% of its workforce ahead of next year’s medical device tax is about 80% complete, he said.
"As some of the original plans across our various businesses have been continued to be evaluated given where those businesses are, we’re slowing some of those down. And as we look at some of the changes on a macro picture, there are other areas where we’re increasing and doing more to reflect the new reality, so to speak," Hartman said during the conference call. "The other parts of our ability to address the med-device tax are continued innovation, the accretion that we expect to receive in most of our deals beginning in year 2 and year 3 – and we’re now getting to year 2 and year 3 on most of those deals. I think we’ll have 1 deal outstanding after the end of the third quarter, and that would be Concentric, which closed in October of last year. So we’ll start to get most of our deals into the year 2, year 3 period, where they add more value to the earnings line. And ongoing focus on internal innovation and internal efficiency through things like the work of a global quality and ops group."
