Can I make a confession for a second? Every time I write about medical device maker Stryker (NYSE:SYK), I am nearly overcome with the urge to lace the article with quotes from Ted Striker, the hapless hero in the movie "Airplane!"
"I've got to concentrate." I'm going to have to give in this time. Ted Striker it is.
Stryker reported year-over-year gains in revenues of 22%, with sales just over $1 billion. Earnings were even better: Stryker topped off last year's results by more than 30%. In its conference call (courtesy of CCBN), CEO John Brown attributed the positive gains to "Severe shell shock. Thinks he's Ethel Merman." No, wait, that's Ted Striker.
What Mr. Brown said was that the company's orthopedic divisions enjoyed growth in sales exceeding 26% "with extremely strong growth in reconstructive implants and bone cement, but did have a softer quarter in trauma sales." He also noted that the company was making substantial progress in minimal invasive surgery procedures and products. Please read Glen Trematore's Take for an excellent overview.
For the quarter, Stryker generated more than 33% of its revenues from overseas sources. The company enjoyed even faster growth overseas than it did in its U.S. operations, though part of this is due to the tailwind of a declining dollar.
"No, I've been nervous lots of times."
Of bigger concern to me was the rapid decline of free cash flow as a result of a degradation in the company's working capital position. For the quarter, Stryker saw its cash position drop, while its receivables rose 10%, inventories increased, and it saw a drop in current liabilities of 7%. This could just be a seasonal adjustment, or it could be a sign that Stryker's pressing a little to continue its growth rate in order to justify a fairly buoyant stock price. Still, it must be noted that this is a single quarter, not a trend. Next quarter around, watch for it. "Surely, you can't be serious." Yes, I'm completely serious, and stop calling me Shirley.
I know this is common for company press releases, and believe me, I'd like to give a tip of the cap to Stryker for including a cash flow statement where many companies do not, but why in the world do companies not keep their reporting periods constant in these things? (Hint: There's probably an answer, I just simply don't know it.) We get a comparison on the income statement between first-quarter 2004 and first-quarter 2003, then on the balance sheet, it's the first quarter of 2004 with the last quarter of 2003. Then on the cash flow statement (again, props for including it at all), it's back to the first quarter of 2003. Is it hard to provide the last quarter of 2003 for all of the statements so the balance sheet will make immediate sense?
A few years ago, my dad had hip replacement surgery, and today sports a Stryker ceramic-on-ceramic hip. Not that we take it out and look at it often. Judging from Stryker's growth, this procedure is growing more and more common. CFO Dean Burgy noted that hip sales rose dramatically, "led by our Trident ceramic-on-ceramic hip system in the U.S." On a unit basis, ceramic insert sales represented approximately 30% of our total insert sales in the quarter. We continue to see a strong shift to cementless stems, which are used in higher-end ceramic-on-ceramic procedures. The growth in this area was driven by our Accolade TMZF, Citation TMZF, Secure Fit HA, and Meridian TMZF products." He then said, "No, that's the XR-2200. The 2300 is the lunar shuttle." Oh, wait, that's Ted Striker again. And that's Airplane II. Sorry.
Altogether a solid quarter for a company that continues to see dramatic growth in a cutthroat business with a tendency toward quick product cycles. The leaders in medical devices, including Johnson & Johnson (NYSE:JNJ), Medtronic (NYSE:MDT), Guidant (NYSE:GDT), and St. Jude Medical (NYSE:STJ), all have a tendency not only to respond quickly to medical needs, but also to anticipate them. Wide acceptance of the minimally invasive surgery gear could make joint replacement surgeries even more common than they are today, since the procedures from just a few years ago were still highly invasive. The determination to stay ahead of the competition and to develop products that drive changes in medicine is something of which even old George Zip would have been proud.
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Bill Mann does not own any company mentioned in this story. Obviously, he does own a copy of Airplane! Please view his profile for a list of complete holdings. Stock holdings, that is.
