It's hard to complain about a company that posts double-digit sales growth for 30 consecutive quarters, but investors are finding a way today after Stryker (NYSE:SYK) reported earnings Thursday afternoon.
The company operates in two segments. The first, orthopedic implants, reported 15% year-over-year growth, with three of its five product franchises growing by more than 20%. What weighed this segment down was its hip replacement business, which grew by just 7% because an earlier recall of its Trident hip product is still affecting sales. However, Stryker is again supplying the Trident and is working to restore market share that it lost to Johnson & Johnson (NYSE:JNJ).
The other half of Stryker's business, medsurg equipment, posted nice 21% year-over-year growth in second-quarter sales, thanks in large part to healthy international growth of 37%, which is reduced to 25% after correcting for currency exchange. Back at home, the segment that sells medical equipment to hospitals posted year-over-year growth of 16%.
All isn't perfect with Stryker, however. The company is dealing with three Food and Drug Administration warning letters that deal with quality-control issues and FDA inspections at two manufacturing plants. Stryker said it will spend $50 million per year over the next few years to deal with the problem.
There are two likely reasons for today's decline. First, investors have come to expect the growth, so numbers like the ones above are no longer as exciting. Even though the company beat estimates by a penny, in today's market, that isn't enough. Second, the FDA issue could still be weighing on the company.
It'll be interesting to see what happens when fellow medical implant companies Zimmer (NYSE:ZMH) and Smith & Nephew (NYSE:SNN) report earnings in the coming weeks. Both sport P/Es that are in line with or higher than Stryker's P/E, suggesting that investors are expecting more of the same double-digit growth from the rest of the industry.
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