Stryker Corporation (SYK)
Q4 2009 Earnings Call Transcript
January 26, 2010 4:30 pm ET
Executives
Stephen MacMillan – Chairman, President, and CEO
Katherine Owen – VP, Strategy and IR
Curt Hartman – VP and CFO
Analysts
Derrick Sung – Sanford Bernstein
David Lewis – Morgan Stanley
Rick Wise – Leerink Swann
Tao Levy – Deutsche Bank
Matt Miksic – Piper Jaffray
Bruce Nudell – UBS
Taylor Harris – JPMorgan
David Roman – Goldman Sachs
Doug Schenkel – Cowen & Company
Bob Hopkins – Banc of America
Ben Andrew – William Blair & Company
Raj Denhoy – Jefferies & Co.
Glenn Novarro – RBC Capital Markets
Adam Feinstein – Barclays Capital
Michael Matson – Wells Fargo Securities
Steven Lichtman – JMP Securities
Kristen Stewart – Credit Suisse
Joanne Wuensch – BMO Capital Markets
Jeff Johnson – Robert Baird
Bill Plovanic – Canaccord Adams
Presentation
Operator
Good day, ladies and gentlemen, and welcome to the fourth quarter 2009 Stryker earnings conference call. My name is Regina, and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session (Operator instructions)
Certain statements made in today’s conference may constitute forward-looking statements. They will be based upon management’s current expectations and will be subject to various risks and uncertainties that could cause the company’s actual results to differ materially from those expressed or implied in such statements. For information concerning these risks and uncertainties please see the company’s filings with the United States Securities and Exchange Commission, including the company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
The company does not undertake any obligation to update or revise any of these forward-looking statements. Today’s conference call will include a discussion of constant current rates performance and adjusted diluted net earnings per share for the fourth quarter and years ended December 31, 2009 and December 31, 2008. Further discussion for these non-GAAP financial measures, including GAAP reconciliation apparent in the company’s Form 8-K filed today with the SEC. The company’s SEC filings may be accessed from the ‘For Investors’ page on the company’s website at www.stryker.com.
I would now like to turn the conference over to your host for today Mr. Stephen MacMillan, Chairman, President and CEO. Please proceed.
Stephen MacMillan
Thank you, Regina, and good afternoon everyone and welcome to Stryker’s fourth quarter 2009 earnings report. With me today are Curt Hartman, our Vice President and Chief Financial Officer and Katherine Owen, Vice President of Strategy and Investor Relations.
With 2009 results now complete, and as we focus on our commitments for 2010 we thought it would be helpful to put some of the key events over the past 12 months into perspective. Clearly, 2009 presented us with considerable challenges ranging from impact tied to the global economic upheaval to concerns over US healthcare reform. And for us, we also continue to invest in our quality and compliance initiative where we are now well into year two of our three-year initial program.
Against this complex backdrop, we were able to maintain our history of delivering year over year sales growth, albeit well below historical levels. Amidst the challenges, however, we were actually fairly pleased that four of our five implant franchises, including knees, trauma, spine and CMF achieved double-digit growth in the important US market for the full year, and hips continued their improvement but 6% for your US growth. Although, MedSurg 2009 sales were down 7% in the US owing to the drop off in hospital capital purchases, we benefited from our broad geographic footprint and continued focus on expanding these franchises outside the US, were sales achieved a 3% constant currency gain in 2009.
A focus on strict cost controls and leveraging our infrastructure allowed us to achieve adjusted EPS growth of 4% in 2009 and 11% for the fourth quarter, consistent with the commitments we made back in April. And we were also able to successfully deploy a portion of our sizable cash balance in a series of acquisitions, most notably, the late 2009 purchase of Ascent Healthcare, which we view as an important strategic move to help us better partner with hospitals to help them achieve their cost savings and sustainability goals.
So, in a year where we had to play some needed defense we were also laying the foundation for very accelerating growth in the quarters ahead. Also as part of our capital allocation strategy, we put in place a $750 million share buyback program in late 2009. Although M&A remains our preferred use of cash, the share buyback gives us additional flexibility.
As we sit here today, we believe we’ve emerged from what has undoubtedly been one of the most challenging years in our company’s history. Although many of the headwinds that were presented to us in 2009 will linger a bit in 2010, we do expect to show improving momentum as evidenced by a return to more reasonable top and bottom line growth. To put it another way, our 2010 guidance does not yet reflect what we believe will be our longer-term sustainable sales and earnings growth rates. But we are clearly entering this year with improving momentum.
With that, I will now turn the call over to Katherine.
Katherine Owen
Thanks, Steve. As we done on prior calls, I would like to provide an update and some additional perspective on several key topics, including hospital capital budgets, pricing and OP-1. With respect to hospital capital budgets, the environment remains challenging however, we continue to believe that we are in a period of greater stability based on feedback from our hospital customers. Although we don’t expect 2010 to go back to business as usual regarding new hospital capital projects or capital spending in general, we believe the environment will show signs of incremental improvement. Recall that close to 60% of our MedSurg sales are tied to capital purchases and we would expect that business to show continued stability with some incremental improvement in 2010. And note that with roughly 40% of MedSurg sales coming from disposables, there is an offset to the hospital capital pressure which will help the total franchise in 2010. Curt will go into more detail regarding some of the key assumptions that will help with your modeling.
Turning to pricing, we continue to experience low single digit price declines in our domestic hip and keen business, which was not significantly different from prior quarters. Our other implant businesses had varying pricing trends with trauma and CMF continuing to realize price gains while our spinal implants experienced ongoing pricing pressure.
On a geographic basis, pricing was flat outside the US, given price declines in Japan which was offset by more favorable pricing dynamics in other regions. Also our global total company price was down close to 1% in the fourth quarter.
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