Stryker Orthopaedics just reported its fourth $1 billion quarter in a row. For the first quarter of 2015 sales reached $1.023 billion, up 2.4% on a reported basis and up a whoppin’ 6.5% if you consider the 5.1% unfavorable impact of the strong U.S. dollar and exclude the impact of acquisitions.
On a constant currency basis, knees, hips, trauma/extremities and spine all climbed 3.1%, 3.6%, 15% and 3%, respectively. The strong trauma and extremities showing resulted from 18% growth in the U.S. with 30% foot and ankle growth driven by a 10% contribution from SBi (Small Bone Innovations).
Supply Disruptions
Stryker Corporation’s Chairman and CEO Kevin Lobo told analysts on April 21, 2015 that like any quarter, the company had some challenges, including U.S. supply disruptions, which adversely impacted revenue for both instruments and MAKO implants. “The MAKO issues will be resolved in Q2, while the Instruments situation will linger into Q3. Despite these challenges, both businesses managed to post positive growth in the quarter. In both cases, we see delayed sales and no material loss of revenue for the full year, ” added Lobo.
Hip and Knee Markets Steady
Wells Fargo analyst Larry Biegelsen said first quarter hip and knee markets appear stable. With three of the top five orthopedic makers now having reported first quarter sales, Biegelsen says it appears that the quarter’s hip and knee market growth is largely flat sequentially. He said U.S. hip and knee market growth appears to have accelerated moderately, but would expect U.S. growth to also be flat sequentially after Zimmer Holdings, Inc. reports on April 30, 2015. He expects Zimmer to report recon growth in-line with the market in the 2-3% range.
Mike Matson of Needham & Co. estimates that based on results from Biomet, Inc., Johnson & Johnson’s DePuy Synthes, and Stryker and estimates for the others, global recon growth, on a constant currency basis, was 3% in the quarter. He estimates that on a constant currency basis, global knee and hip growth was also 3%.
MAKO Impact
The company received FDA clearance during the quarter to use its hip implants on the MAKO robot. Management does not believe that the clearance provided a significant benefit to its growth during the quarter, but expects the clearance to drive growth moving forward. The company sold nine MAKO robots during the quarter which is up from the two it sold during the first quarter of 2014, but down from the 20 it sold in the last quarter of 2014. Biegelsen believes the big fourth quarter was likely due to hospitals using budget surplus at the end of the year to buy capital equipment. The total knee application was submitted in late 2014 and the company continues to work with the FDA.
Merger and Acquisition Activity
Raj Denhoy of Jefferies LLC, said merger and acquisition activity is likely, “though given the increasingly broad Stryker footprint, where and what are difficult to predict. We still don’t think core orthopedics is where the company will look.”
Stryker management said it expects constant currency sales growth in the range of 6.0% to 7.0% for 2015.
