Stryker Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Amounts are in millions of U.S. dollars except per-share data. The filing also reports fourth-quarter results.
Business context
Stryker is a global medical technology company operating in MedSurg and Neurotechnology, and Orthopaedics and Spine. It sells products in approximately 75 countries. MedSurg and Neurotechnology accounted for 58% of 2023 sales; Orthopaedics and Spine accounted for 42%.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Net sales | $20,498 | $18,449 |
| Gross profit / margin | $13,058 / 63.7% | $11,578 / 62.8% |
| Operating income / margin | $3,888 / 19.0% | $2,841 / 15.4% |
| Net earnings / net margin | $3,165 / 15.4% | $2,358 / 12.8% |
| Diluted EPS | $8.25 | $6.17 |
| Adjusted diluted EPS (non-GAAP) | $10.60 | $9.34 |
| Cash from operations | $3,711 | $2,624 |
| Capital expenditures | $575 | $588 |
| Cash, cash equivalents and current marketable securities | $3,053 | $1,928 |
| Total debt | $12,995 | $13,048 |
Operating cash flow less capital expenditures was approximately $3,136 in 2023, versus $2,036 in 2022. Current assets exceeded current liabilities by $4,597 at year-end, compared with $3,972 a year earlier. Current debt maturities were $2,094. Stryker reported $2,160 of borrowing capacity on existing facilities and no outstanding commercial paper or credit-facility borrowings at year-end.
Sales increased 11.1% as reported and 11.6% in constant currency; excluding acquisitions and divestitures, constant-currency growth was 10.9%. MedSurg and Neurotechnology sales rose 11.5% as reported, while Orthopaedics and Spine sales rose 10.5%. The United States generated $15,257 of sales and international markets $5,241.
Fourth-quarter 2023 sales were $5,815, compared with $5,202 in fourth-quarter 2022. Fourth-quarter net earnings were $1,143 versus $563; diluted EPS was $2.98 versus $1.47.
Material changes and management commentary
- Sales growth reflected higher unit volumes across product lines and a 0.6% contribution from higher prices overall. Foreign exchange reduced reported sales growth by 0.5 percentage points.
- Gross margin improved 0.9 percentage points year over year, primarily on pricing and volume, partly offset by higher manufacturing and supply-chain costs. Operating income also benefited from higher volume and improved supply-chain costs in MedSurg.
- Orthopaedics and Spine operating margin declined to 27.7% from 29.3%, reflecting higher selling and administrative expense and manufacturing costs, including increased inventory reserves.
- Net earnings included reported charges and adjustments. The company’s adjusted EPS is non-GAAP and excludes specified items, including purchased-intangible amortization, structural optimization, medical-device regulation, recall, legal and acquisition-related items. Reconcile adjusted and GAAP results when assessing performance.
- The company acquired Cerus in May 2023 for $289 net cash consideration, with up to $225 in milestone payments. It paid $1,139 in dividends and made no share repurchases in 2023.
Outlook, risks and contingencies
Management’s stated goal is sales growth at the high end of the MedTech industry; the filing does not provide a clear numerical 2024 sales or earnings guidance figure. Management cited persistent inflation, labor and shipping costs, higher interest rates, currency movements and geopolitical conflicts as economic challenges that could affect costs and customer orders.
- Regulatory and legal exposure: Stryker is investigating whether certain activities in foreign countries violated the FCPA and has been contacted by the SEC, Department of Justice and other authorities. The company says the outcome and potential financial impact cannot currently be predicted.
- Product claims and recalls: The company recorded $85 of 2023 charges related to specified hip-product matters and reported a $292 accrual at year-end. It cautions that ultimate costs could differ materially. Other product-liability and patent proceedings are ongoing.
- Pricing and market access: Healthcare cost-containment measures and China’s volume-based procurement programs have affected certain product categories; further adoption in China was expected in 2024.
- Operations and technology: Risks include sole-source suppliers, supply disruptions, regulatory compliance, cybersecurity incidents and implementation of a new global ERP system. The company said cybersecurity risks had not materially affected it to date.
- Debt and obligations: Contractual obligations totaled $19,935, including $13,080 of debt repayments and $3,163 of interest payments. The company had $371 of reserves for uncertain tax positions and defined-benefit pension plans underfunded by $341.
- Impairment sensitivity: Spine goodwill was approximately $1.0 billion. Its estimated fair value exceeded carrying value by 10% in the 2023 test; management noted that a 100-basis-point increase in the discount rate would reduce fair value by 12% and imply a $51 impairment charge under the disclosed sensitivity.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management and the auditor concluded internal controls were effective as of December 31, 2023.
Key facts for investors to verify
- Whether volume, pricing and segment sales growth continue, particularly the relative growth and margin contribution of each segment.
- How much of the gap between GAAP EPS of $8.25 and adjusted EPS of $10.60 reflects recurring versus unusual costs.
- Progress and potential financial consequences of the FCPA investigations, product-liability matters and other legal proceedings.
- Debt maturities, refinancing costs and the effect of higher interest rates, including floating-rate obligations.
- Whether China procurement programs, supply constraints, inflation and regulatory requirements affect pricing, availability or margins.
- Spine performance and the assumptions supporting its goodwill valuation, as well as Cerus integration and milestone-payment outcomes.