Stryker Posts 77 Percent Drop in First-Quarter Earnings

Charges associated with product recalls and acquisitions of other companies resulted in a big drop in first-quarter net earnings for Stryker Corp.

The Kalamazoo, Mich.-based company reported net earnings of $70 million, a 77 percent decrease from the first quarter of 2013, with diluted net earnings per share of 18 cents, reflecting a 77.2 percent drop from diluted per-share earnings during the first quarter a year ago.

Excluding the impact of those one-time events and acquisition costs, the maker of hospital bed, replacement hips and powered surgical devices, posted adjusted net earnings of $404 million, a 3.1 percent decrease. Adjusted diluted net earnings per share were $1.06, a 2.8 percent decrease compared to the same period a year ago.

For the period, which ended March 31, net sales increased 5.3 percent to $2.3 billion. In the company’s quarterly financial report, Stryker President/CEO Kevin A. Lobo touted that growth.

“The strength of our diversified model was once again demonstrated in the first quarter with solid organic growth of 5 percent,” he said. “Our continued investments in internal innovation, coupled with our recent acquisitions, position us well to meet our customers’ evolving needs.”

Company management said it is sticking with financial guidance it provided earlier to the investment community.

“There is no change to our previously disclosed guidance which calls for organic sales growth in 2014 to be in the range of 4.5 percent to 6 percent with adjusted diluted net earnings per share expected to be in the range of $4.75 to $4.90, excluding amortization of intangible assets. If foreign currency exchange rates hold near current levels, we expect net sales in the second quarter and full year of 2014 to be negatively impacted by less than 1 percent.”

According to the company, reported net earnings include charges related to the voluntary recalls in 2012 of metal hip implants Rejuvenate and ABG II and the Neptune surgical waste removal systems, as well as “acquisition and integration related charges, additional cost of sales for inventory sold that was ‘stepped up’ to fair value related to acquisitions, restructuring and related charges, certain charges related to legal and regulatory matters and charges associated with the resolution of certain tax matters.”

The metal-on-metal modular-neck hip stems were prone to fretting and corrosion that had the potential to cause swelling and pain in patients, according to reports. The surgical waste system, which automatically removed wastes during surgeries, was a high-flow device that had the potential to cause harm if attached to a passive drainage system tube.

In the first quarter of 2014 Stryker completed acquisitions of two California-based companies, surgical safety systems maker Patient Safety Technologies Inc. and hip arthroscopy company Pivot Medical Inc. It also announced it has a definitive agreement to buy German surgical room equipment maker Berchtold Holding AG.