Stryker Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing also reports unaudited fourth-quarter results. Dollar amounts are in millions except per-share data.
Business context
Stryker is a global medical-technology company selling products in more than 75 countries. Its reportable segments are MedSurg and Neurotechnology, and Orthopaedics and Spine. The company revised its segment structure effective December 31, 2021 and recast historical segment data.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $17,108 | $14,351 |
| Gross profit / margin | $10,968 / 64.1% | $9,057 / 63.1% |
| Operating income / margin | $2,584 / 15.1% | $2,223 / 15.5% |
| Net earnings / diluted EPS | $1,994 / $5.21 | $1,599 / $4.20 |
| Adjusted net earnings / diluted EPS (non-GAAP) | $3,474 / $9.09 | $2,827 / $7.43 |
| Cash from operating activities | $3,263 | $3,277 |
| Capital expenditures | $525 | $487 |
| Cash, cash equivalents and current marketable securities | $3,019 | $3,024 |
| Total debt at year-end | $12,479 | $13,991 |
| Current assets less current liabilities | $5,468 | $4,666 |
Sales grew 19.2% reported and 18.1% in constant currency. Excluding acquisitions and divestitures, constant-currency sales growth was 13.4%, primarily reflecting higher unit volumes, partly offset by lower prices. Reported gross margin improved, while operating margin declined slightly. Management’s adjusted measures exclude specified acquisition, amortization, restructuring, regulatory and recall items and should be considered alongside GAAP results.
MedSurg and Neurotechnology sales rose 14.3% to $9,538; Orthopaedics and Spine sales rose 26.0% to $7,570. The latter growth included a substantial acquisition contribution. Fourth-quarter 2021 sales were $4,701 and net earnings were $662, compared with $4,262 and $568, respectively, in fourth-quarter 2020.
Operating cash flow was broadly unchanged year over year. Cash used in investing activities was $859, versus $4,701 in 2020, when the Wright Medical acquisition drove significant spending. Cash used in financing was $2,365, including $1,151 of long-term debt repayments and $950 of dividends. Stryker paid $2.52 per share in dividends during 2021 and made no share repurchases.
The company reported no borrowings under its revolving credit facility or commercial-paper program at year-end and stated it had strong investment-grade ratings. Its revolving credit facility was increased to $2,250 and extended to October 2026.
Changes, outlook and material items
- Results rebounded from 2020, when COVID-19-related disruption and postponed elective procedures reduced sales and margins. Stryker reported 2021 net sales growth of 19.2%; 2020 sales had declined 3.6%.
- Management said elective-procedure recovery was partial in the second quarter of 2021, with Delta-related hospitalization increases and Omicron continuing to affect procedures. Freight, transport, inflation and absenteeism pressured costs, particularly in the fourth quarter.
- Management’s stated goal is sales growth at the high end of the MedTech industry. The filing provides no specific numerical 2022 revenue or earnings guidance.
- In January 2022, Stryker announced an agreement to acquire Vocera for approximately $3.1 billion, including convertible notes; closing was expected in the first quarter of 2022, subject to customary conditions.
- 2021 asset impairments totaled $264, including $105 related to China volume-based procurement programs and other charges largely associated with COVID-19 demand effects, product development and restructuring or divestiture activities.
- Recall matters generated $103 of 2021 charges and $221 of payments. The estimated remaining probable loss for recall matters was approximately $385–$520, with reserves recorded at the minimum of that range; actual outcomes may differ materially.
Risks and contingencies
- COVID-19 remains a risk to elective procedure volumes, workforce availability, supply chains, manufacturing, distribution and demand. Electronic-component constraints and labor shortages were specifically noted.
- Inflation and supply disruptions may raise manufacturing and operating costs; the company may not be able to pass cost increases on promptly.
- China’s volume-based procurement programs have affected joint replacement and trauma products and may expand. Pricing pressure, healthcare cost containment and provider consolidation are broader risks.
- Product liability, recall, litigation and regulatory matters could result in additional costs. The company identified significant product-liability estimates as a critical audit matter.
- Other stated risks include evolving medical-device regulation, healthcare fraud and anti-bribery compliance, privacy and cybersecurity, intellectual-property disputes, foreign-exchange exposure, acquisition integration and implementation of a new global ERP system.
- Uncertain tax positions were $444 at year-end; the company could not reasonably estimate when related payments might be made. Defined-benefit pension plans were underfunded by $493.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective as of December 31, 2021.
Most important facts for investors to verify
- How much 2021 sales growth reflects underlying volume versus acquisitions, currency effects and price changes, particularly in Orthopaedics and Spine.
- Whether elective-procedure recovery and supply-chain conditions support margin improvement, given inflation, freight costs and labor constraints.
- The ultimate cost, timing and cash-flow impact of product recalls and Wright legacy product claims.
- The financial and integration implications of the announced Vocera acquisition and Stryker’s ongoing debt and acquisition strategy.
- How China procurement programs, regulatory changes and other pricing pressures affect future sales, impairments and profitability.
- Reconciliation and persistence of adjusted, non-GAAP earnings relative to GAAP earnings, including excluded recurring or acquisition-related costs.