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Stryker's (SYK) Q3 Earnings Miss Estimates, Volume Improves
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Stryker Corporation (SYK - Free Report) reported third-quarter 2022 adjusted earnings per share (EPS) of $2.12, which missed the Zacks Consensus Estimate of $2.24 by 5.4%. The bottom line declined 3.6% year over year.
GAAP EPS in the quarter was $2.14, up 87.7% from the prior-year quarter.
Revenue Details
This Michigan-based medical device company reported revenues of $4.48 billion, which slightly beat the Zacks Consensus Estimate of $4.47 billion. The top line improved 7.7% on a year-over-year basis and 11.4% at constant currency (cc). Sales were up 9.9% organically, reflecting 10.6% growth in unit volume, which was offset by 0.7% due to lower prices.
Revenues by Geography
Revenues in the United States were $3.36 billion, up 11.3% year over year. However, International sales were down 1.9% to $1.12 billion. Strong growth in Europe, Canada and emerging markets were more than offset by lower sales in China. Excluding the negative impact of currency, International sales were up 11.7%.
Segmental Analysis
Effective Dec 31, 2021, Stryker updated its reportable business segments to align with its new internal reporting structure.
MedSurg and Neurotechnology: This segment reported sales of $2.59 billion, up 10.2% year over year and 13.5% at cc. Double-digit growth in the core Endoscopy, Sports Medicine, Sage and acute care businesses primarily drove segmental sales. Per management, the segment saw 10.8% organic growth in the reported quarter.
Orthopedics and Spine: Sales in the segment amounted to $1.94 billion, up 4.4% year over year and 8.7% at cc. The upside can be attributed to strength in the Hip, Knee, and Trauma and Extremities businesses sub-segments.
Margins
In the third quarter, adjusted gross profit totaled $2.8 billion, up 1.6% from the year-ago quarter. The adjusted gross margin was 62.6%, down 370 basis points (bps).
Total operating expenses were $1.97 billion, down 4.5% from the year-ago quarter, primarily due to lower selling, general & administrative (SG&A) expenses.
Stryker Corporation Price, Consensus and EPS Surprise
Adjusted operating income amounted to $1 billion, down 5.4% from the prior-year quarter. The adjusted operating margin was 22.3%, down 310 bps.
Financial Update
The company exited the third quarter with cash and cash equivalents of $1.42 billion, compared with $1.04 billion in the preceding quarter.
Cumulative net cash provided by operating activities in the third quarter was $1.62 billion, compared with $2.26 billion in the year-ago period.
2022 View
Stryker raised the lower end of its guidance for revenue growth in 2022, considering its strong order book for capital equipment and the sales momentum in the implant businesses. The company expects net sales to grow in the range of 8.5% to 9%, compared with the previous expectation of 8% to 9%. The company expects unfavorable currency movement to hurt growth by approximately 4%, if foreign currency exchange rates hold near current levels.
Unfavorable currency movement, ongoing supply chain challenges and the inflationary environment led Stryker to lower its adjusted net earnings per share guidance to the range of $9.15 to $9.25 from the previous band of $9.30 to $9.50.
Wrapping Up
Stryker exited third-quarter 2022 on a mixed note, wherein earnings missed the consensus estimate while revenues surpassed the same. The company witnessed strong performance across the segments in the United States. However, International sales declined due to unfavorable currency movement.
Per management, the company continues to face material shortages, which primarily affected Medical and Instruments sales during the third quarter. Moreover, ongoing negative foreign currency values and inflationary pressure continue to hurt margins, a trend expected to continue in the fourth quarter also but at a lower rate. Stryker is taking action to lessen the negative price impact. It is also taking several cost-cutting initiatives, including restructuring plans. The 9.2% year-over-year decline in SG&A expenses during the third quarter is likely due to these actions, implying that margins may improve going forward. Stryker’s prospects in 2023 seem promising on the back of strong customer demand for its existing products as well as new launches.
However, the contraction in both gross and operating margins is disappointing. Stryker continues to grapple with pricing pressure. Stiff competition in the MedTech space remains a concern.
Zacks Rank
Stryker currently carries a Zacks Rank #4 (Sell).
Stocks to Consider
Some better-ranked stocks in the broader medical space that have announced quarterly results are Elevance Health, Inc. (ELV - Free Report) , Medpace Holdings, Inc. (MEDP - Free Report) and Accuray (ARAY - Free Report) .
Elevance Health, carrying a Zacks Rank #2 (Buy), reported third-quarter 2022 adjusted EPS of $7.53, which beat the Zacks Consensus Estimate by 6.1%. Revenues of $39.63 billion outpaced the consensus mark by 1.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Elevance Health has an earnings yield of 5.5% against the industry’s 2.3%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average being 4.1%.
Medpace Holdings, having a Zacks Rank #1, reported third-quarter 2022 adjusted EPS of $2.05, which beat the Zacks Consensus Estimate by 39.5%. Revenues of $384 million outpaced the consensus mark by 8.1%.
Medpace Holdings has an estimated growth rate of 22.7% for 2022. MEDP’s earnings surpassed estimates in all the trailing four quarters, the average being 22.04%.
Accuray reported fourth-quarter fiscal 2022 adjusted loss per share of 4 cents, which surpassed the Zacks Consensus Estimate by 33.3%. Fourth-quarter revenues of $110 million outpaced the Zacks Consensus Estimate by 4.9%. It currently has a Zacks Rank #2.
Accuray has an estimated growth rate of 100% for fiscal 2023. ARAY’s earnings surpassed estimates in three of the trailing four quarters and lagged the same in one, the average surprise being 20.8%.
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Stryker's (SYK) Q3 Earnings Miss Estimates, Volume Improves
Stryker Corporation (SYK - Free Report) reported third-quarter 2022 adjusted earnings per share (EPS) of $2.12, which missed the Zacks Consensus Estimate of $2.24 by 5.4%. The bottom line declined 3.6% year over year.
GAAP EPS in the quarter was $2.14, up 87.7% from the prior-year quarter.
Revenue Details
This Michigan-based medical device company reported revenues of $4.48 billion, which slightly beat the Zacks Consensus Estimate of $4.47 billion. The top line improved 7.7% on a year-over-year basis and 11.4% at constant currency (cc). Sales were up 9.9% organically, reflecting 10.6% growth in unit volume, which was offset by 0.7% due to lower prices.
Revenues by Geography
Revenues in the United States were $3.36 billion, up 11.3% year over year. However, International sales were down 1.9% to $1.12 billion. Strong growth in Europe, Canada and emerging markets were more than offset by lower sales in China. Excluding the negative impact of currency, International sales were up 11.7%.
Segmental Analysis
Effective Dec 31, 2021, Stryker updated its reportable business segments to align with its new internal reporting structure.
MedSurg and Neurotechnology: This segment reported sales of $2.59 billion, up 10.2% year over year and 13.5% at cc. Double-digit growth in the core Endoscopy, Sports Medicine, Sage and acute care businesses primarily drove segmental sales. Per management, the segment saw 10.8% organic growth in the reported quarter.
Orthopedics and Spine: Sales in the segment amounted to $1.94 billion, up 4.4% year over year and 8.7% at cc. The upside can be attributed to strength in the Hip, Knee, and Trauma and Extremities businesses sub-segments.
Margins
In the third quarter, adjusted gross profit totaled $2.8 billion, up 1.6% from the year-ago quarter. The adjusted gross margin was 62.6%, down 370 basis points (bps).
Total operating expenses were $1.97 billion, down 4.5% from the year-ago quarter, primarily due to lower selling, general & administrative (SG&A) expenses.
Stryker Corporation Price, Consensus and EPS Surprise
Stryker Corporation price-consensus-eps-surprise-chart | Stryker Corporation Quote
Adjusted operating income amounted to $1 billion, down 5.4% from the prior-year quarter. The adjusted operating margin was 22.3%, down 310 bps.
Financial Update
The company exited the third quarter with cash and cash equivalents of $1.42 billion, compared with $1.04 billion in the preceding quarter.
Cumulative net cash provided by operating activities in the third quarter was $1.62 billion, compared with $2.26 billion in the year-ago period.
2022 View
Stryker raised the lower end of its guidance for revenue growth in 2022, considering its strong order book for capital equipment and the sales momentum in the implant businesses. The company expects net sales to grow in the range of 8.5% to 9%, compared with the previous expectation of 8% to 9%. The company expects unfavorable currency movement to hurt growth by approximately 4%, if foreign currency exchange rates hold near current levels.
Unfavorable currency movement, ongoing supply chain challenges and the inflationary environment led Stryker to lower its adjusted net earnings per share guidance to the range of $9.15 to $9.25 from the previous band of $9.30 to $9.50.
Wrapping Up
Stryker exited third-quarter 2022 on a mixed note, wherein earnings missed the consensus estimate while revenues surpassed the same. The company witnessed strong performance across the segments in the United States. However, International sales declined due to unfavorable currency movement.
Per management, the company continues to face material shortages, which primarily affected Medical and Instruments sales during the third quarter. Moreover, ongoing negative foreign currency values and inflationary pressure continue to hurt margins, a trend expected to continue in the fourth quarter also but at a lower rate. Stryker is taking action to lessen the negative price impact. It is also taking several cost-cutting initiatives, including restructuring plans. The 9.2% year-over-year decline in SG&A expenses during the third quarter is likely due to these actions, implying that margins may improve going forward. Stryker’s prospects in 2023 seem promising on the back of strong customer demand for its existing products as well as new launches.
However, the contraction in both gross and operating margins is disappointing. Stryker continues to grapple with pricing pressure. Stiff competition in the MedTech space remains a concern.
Zacks Rank
Stryker currently carries a Zacks Rank #4 (Sell).
Stocks to Consider
Some better-ranked stocks in the broader medical space that have announced quarterly results are Elevance Health, Inc. (ELV - Free Report) , Medpace Holdings, Inc. (MEDP - Free Report) and Accuray (ARAY - Free Report) .
Elevance Health, carrying a Zacks Rank #2 (Buy), reported third-quarter 2022 adjusted EPS of $7.53, which beat the Zacks Consensus Estimate by 6.1%. Revenues of $39.63 billion outpaced the consensus mark by 1.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Elevance Health has an earnings yield of 5.5% against the industry’s 2.3%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average being 4.1%.
Medpace Holdings, having a Zacks Rank #1, reported third-quarter 2022 adjusted EPS of $2.05, which beat the Zacks Consensus Estimate by 39.5%. Revenues of $384 million outpaced the consensus mark by 8.1%.
Medpace Holdings has an estimated growth rate of 22.7% for 2022. MEDP’s earnings surpassed estimates in all the trailing four quarters, the average being 22.04%.
Accuray reported fourth-quarter fiscal 2022 adjusted loss per share of 4 cents, which surpassed the Zacks Consensus Estimate by 33.3%. Fourth-quarter revenues of $110 million outpaced the Zacks Consensus Estimate by 4.9%. It currently has a Zacks Rank #2.
Accuray has an estimated growth rate of 100% for fiscal 2023. ARAY’s earnings surpassed estimates in three of the trailing four quarters and lagged the same in one, the average surprise being 20.8%.