Stryker Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Stryker develops and sells medical technology across Orthopaedics, MedSurg, and Neurotechnology and Spine. Dollar amounts below are in millions, except per-share amounts.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $4,294 | $2,764 | $8,247 | $6,352 |
| Gross profit / margin | $2,772 / 64.6% | $1,548 / 56.0% | $5,281 / 64.0% | $3,879 / 61.1% |
| Operating income (loss) / margin | $732 / 17.0% | $(20) / (0.7)% | $1,191 / 14.4% | $615 / 9.7% |
| Net earnings (loss) | $592 | $(83) | $894 | $410 |
| Diluted EPS | $1.55 | $(0.22) | $2.34 | $1.08 |
| Operating cash flow | Not provided quarterly | Not provided quarterly | $1,330 | $1,211 |
Q2 sales increased 55.4% reported and 51.8% in constant currency; six-month sales rose 29.8% and 27.1%, respectively. Management also reported Q2 growth of 17.6% versus 2019 and six-month growth of 15.1% versus 2019. Q2 adjusted operating margin was 25.9% and adjusted diluted EPS was $2.25; six-month adjusted margin was 24.7% and adjusted diluted EPS was $4.18. These are non-GAAP measures and exclude specified items.
Q2 sales growth was broad-based, with reported increases of 82.3% in Orthopaedics, 32.3% in MedSurg, and 66.9% in Neurotechnology and Spine. The company attributed growth principally to higher procedure-related shipments as elective procedures recovered, and to acquisitions. The Wright Medical acquisition, completed in November 2020, contributed materially to Orthopaedics growth.
Cash, liquidity, debt, and capital allocation
- Cash and cash equivalents were $2,241 at June 30, down from $2,943 at year-end; cash plus marketable securities totaled $2,325.
- Six-month cash flow: $1,330 provided by operations, $298 used in investing, and $1,729 used in financing. Financing outflows chiefly reflected repayment of $750 of notes and a $400 term loan; dividends paid were $475.
- Total debt was $12,740, including $6 current maturities; long-term debt was $12,734. No borrowings were outstanding under the revolving credit facility or commercial paper program. The company reported $1,408 of borrowing capacity on existing facilities and compliance with debt covenants.
- Current assets exceeded current liabilities by $4,780. Management said it expects to meet short-term liquidity and operating needs through operating cash flow, commercial paper, credit lines, and expense and capital expenditure measures.
- No shares were repurchased in the first half; the repurchase program was suspended through 2021. Cash dividends declared were $0.63 per share in Q2.
Material changes, outlook, and risks
- Recovery and comparability: Results rebounded from Q2 2020, when pandemic-related restrictions and suspended elective procedures significantly depressed sales and earnings. Management said procedure recovery remained variable by region; the pandemic’s future financial impact could not be quantified.
- Margins and costs: Higher volume and favorable mix supported margins, partly offset by lower selling prices. Adjusted results exclude, among other items, acquisition and integration costs, purchased-intangible amortization, medical-device regulatory costs, and recall charges.
- Recall exposure: First-half recall charges were $82 and related payments were $163, primarily for Rejuvenate and ABG II hip stems. The estimated remaining probable loss range for global recall matters was approximately $415–$550; the company recorded reserves at the minimum of that range. Actual costs could differ materially.
- China procurement: Volume-based procurement tenders may lower prices and shift unit volumes. Based on preliminary indications, Stryker expected to win certain regional trauma tenders but lose others; final decisions could lead to an approximately $100 impairment charge. Outcomes of the national hips-and-knees program could also negatively affect joint replacement operations. China represented about 2% of 2020 revenue.
- Other risks: The filing discusses product-liability and other legal proceedings, foreign-exchange exposure, supplier and operating disruption risks, and uncertainty surrounding COVID-19. No specific earnings or revenue guidance is provided in the filing.
Important facts for investors to verify
- Whether elective procedure volumes and regional recovery continued after quarter-end, including any renewed pandemic-related disruption.
- Final China tender results, their pricing and volume effects, and whether the potential impairment was recorded.
- Developments in recall claims and settlements versus the disclosed $415–$550 probable-loss range and recorded reserves.
- How Wright integration, acquisition-related costs, and increased intangible amortization affect reported versus adjusted earnings and cash generation.
- Debt repayment, liquidity, and the company’s announced suspension of share repurchases through 2021.