Stryker Corporation (SYK) on Q1 2023 Results - Earnings Call Transcript
Operator: Good day and welcome to the First Quarter 2023 Stryker Earnings Call. My name is Todd and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Following the conference, we will conduct a question-and-answer session. Please note this conference call is being recorded for replay purposes. Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC. Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release, that is an exhibit to Stryker's current report on Form 8-K filed today with the SEC. I will now turn the call over to Mr. Kevin Lobo, Chair and Chief Executive Officer. You may proceed, sir.
Kevin Lobo: Welcome to Stryker's first quarter earnings call. Joining me today are Glenn Boehnlein, Stryker's CFO; and Jason Beach, Vice President of Investor Relations. For today's call, I will provide opening comments followed by Jason with the trends we saw during the quarter and some product updates. Glenn will then provide additional details regarding our quarterly results, before opening the call to Q&A. In the first quarter, we delivered organic sales growth of 13.6% with double-digit growth in both MedSurg and Neurotechnology and Orthopaedics and Spine. Our international business continues to be a growth engine with strong results in all countries other than China, which had negative growth due to COVID and volume-based procurement. We are also seeing good traction with our pricing initiatives, delivering positive pricing overall in the first quarter. Importantly, we have begun to realize the gradual improvement of component availability and lessened supply chain constraints. We delivered quarterly adjusted EPS of $2.14, reflecting 8.6% growth compared to the first quarter of 2022 driven by our strong sales performance. With one quarter behind us, we now expect an increased full year organic sales growth of 8% to 9%, coming off a year with almost 10% organic sales growth. This continued sales momentum is a testament to our team's strong execution. We are increasing our expected adjusted earnings per share to $10.5 a share to $10.25 a share. I remain pleased with our ongoing commitment to talent and culture, which is reflected in the recognition of Stryker for the 13th year in a row as one of Fortune's 100 Best Companies to Work For. I would like to thank our leaders for maintaining our positive culture through the significant growth that we have experienced over this period of time. In addition, we recently published our third annual comprehensive report, which captures our commitment and disclosures on our three pillars of corporate responsibility, stronger people, healthier planet, and good business. In July, we will share our virtual corporate responsibility roundtable with leaders from across the organization, bringing to life our progress and how these three pillars tied to our mission. Finally, we will be holding an Investor Day on November 8th in Mahwah, New Jersey. We will provide more details about this event in the coming months. I will now turn the call over to Jason.
Jason Beach: Thanks, Kevin. My comments today will focus on providing an update on the current environment as well as capital demand, product launches, updates on Mako and acquisitions. Procedural volumes continue to recover throughout the first quarter in most countries. As a reminder, Q1 of 2022 had softer volumes in many markets because of COVID related impacts. While volumes are recovering, hospital staffing pressures continue in pockets around the globe and patient backlog remains. As mentioned on the Q4 call, these challenges will likely resolve gradually and we continue to expect this will be a moderate tailwind as we move through 2023. Additionally, demand for our capital products remained healthy in the quarter as seen from the double-digit organic growth of our Medical, Endoscopy, and Instruments divisions. Our capital order book remains strong as we head into Q2. Our product super cycle is underway and driving positive momentum. This began in late 2022 with the US launch of our System 9 power tools, which gained momentum in the quarter and is getting great customer feedback regarding ergonomics and quality. In mid-Q1, we launched the Neptune S waste management system. We've seen significant trialing already with positive customer feedback related to workflow advantages and environmental benefits. Also, some of our other launches this year, include the Xpedition powered stair chair, Mako 2.0 software for knees, Q Guidance for cranial procedures, and the Insignia Hip Stem pacing to be on track for 85% launched by year-end. Finally, we received 510(k) clearance on our 1788 Camera platform which will expand our Endoscopy's division addressable market in the new procedures, including the ability to visualize lung and other cancers. As a reminder, the launch of the 1788 Camera is set for late Q2. We continue to see steady progress with these launches and expect them to be a tailwind for growth in the coming quarters and years. Next, the progress of our Mako offense has resulted in continued growth of our installed base combined with high utilization rates. In the US, we realized strength in our rental contracts which resulted in lower upfront revenue for the quarter. We continue to be agnostic to the form these deals take and our offering flexible options for our customers to acquire capital equipment. Our Vocera integration continues to progress well, and as a reminder, is now included in our organic growth beginning in February of this year. Our expectation that sales will accelerate beginning in Q2 of this year remains unchanged. We will provide our next update on Vocera when we report our full year 2023 results. Lastly, we have obtained regulatory clearance regarding our acquisition of Cerus Endovascular and we expect the deal will close shortly. With that I'll now turn the call over to Glenn.
Glenn Boehnlein: Thanks, Jason. Today, I will focus my comments on our first quarter financial results and the related drivers. Our detailed financial results have been provided in today's press release. Our organic sales growth was 13.6% in the quarter. The first quarter of 2023 had one more selling day than 2022, which is approximately a 1% benefit. The impact from pricing in the quarter was favorable by 0.7%. We continue to see a positive trend from our pricing initiatives, particularly in our US MedSurg businesses, all of which contributed positive pricing for the quarter. Foreign currency had a 2.2% unfavorable impact on sales. In the quarter, US organic sales growth was 12.6%. International organic sales growth was 16.6% impacted by positive sales momentum across most of our international markets. Our adjusted EPS of $2.14 in the quarter was up 8.6% from 2022, driven by higher sales and a favorable adjusted income tax rate, partially offset by inflationary pressures and the impact of foreign currency exchange, which was unfavorable $0.06. Now, I will provide some highlights around our quarterly segment performance. In the quarter, MedSurg and Neurotechnology had constant currency sales growth of 13.1%, with organic sales growth of 12.4%, which included 12.1% of US organic growth and 13.3% of international organic growth. Instruments had US organic sales growth of 8.9% led by double-digit growth in the Surgical Technology business. From a product perspective, sales growth was led by power tools, Steri-Shield, waste management, and smoke evacuation. Endoscopy had US organic sales growth of 16.2% driven by strong growth across most of its major businesses. The growth was highlighted by general surgery, sports medicine, sustainability, communications, and ProCare products. Medical had US organic sales growth of 13.2% reflecting solid performances across our acute care, emergency care, and Sage businesses and benefiting from improvement in product supply throughout the quarter. Our US Neurovascular business returned to growth with organic sales growth of 7.3%, reflecting a strong performance in our hemorrhagic business. The US Neurocranial business had organic sales growth of 9.1%, which included double-digit growth in our Sonopet iQ, Signature High Speed Drills, Bipolar Forceps and Max Space Neuro product lines. Internationally, MedSurg and Neurotechnology had organic sales growth of 13.3% reflecting double-digit growth in almost all businesses. Geographically, this included strong performances in Europe, Australia, Canada and Japan. Orthopedics and Spine had constant currency sales growth of 15.1% with organic sales growth of 15.2% which included organic growth of 13.3% in the US and 20.3% internationally. Our US Hip business grew 16.2% organically reflecting strong primary hip growth fueled by our Insignia Hip Stem and continued procedural growth. Our US Knee business grew 20.7% organically, which reflects our market-leading position in a robotic-assisted knee procedures. Our US Trauma and Extremities business grew 13.7% organically with strong performance across all three businesses. Our US Spine business grew 6.3% led by the performance in our enabling technology and Interventional Spine businesses, including the recently launched Q Guidance Navigation System. Our US Other Ortho declined organically by 14.8% primarily driven by the impact of deal mix changes, specifically more rentals related to Mako installations in the quarter. Internationally, Orthopaedics and Spine grew 20.3% organically, which reflects strong performances in Europe, Australia, Canada and emerging markets. Now, I will focus on operating highlights in the first quarter. Our adjusted gross margin of 63.2% was unfavorable approximately 90 basis points from the first quarter of 2022, reflecting the impact of increased manufacturing and supply chain costs driven by inflationary pressures, somewhat offset by price and volume increases. Sequentially and compared to Q4 2022, we have improved our adjusted gross margin by approximately 50 basis points driven by mix, price decreases in spot prices and improved manufacturing efficiencies. Adjusted R&D spending was 6.5% of sales, which represents a 70 basis point decrease from the first quarter of 2022 due primarily to higher comparable in 2022, which related to the ramping of costs for product launches. Our adjusted SG&A was 35.6% of sales, which was 50 basis points higher than the first quarter of 2022, primarily due to normalization of sales force expansion and meetings. In summary for the quarter, our adjusted operating margin was 21.1% of sales, which was approximately 70 basis points unfavorable to the first quarter of 2022. This performance is primarily driven by the aforementioned inflationary pressures primarily on gross margin. Adjusted other income and expense of $65 million for the quarter was slightly higher than 2022 mainly driven by a one-time benefit in 2022. The first quarter of 2023 had an effective tax rate of 12.8%, reflecting the impact of geographic mix and certain discrete tax items, including stock compensation. For 2023, we now expect full year effective tax rate to be in the range of 14% to 15%. Focusing on the balance sheet, we ended the first quarter with $1.8 billion of cash and marketable securities and total debt of $13.1 billion, approximately $100 million of term loan debt was paid down in the quarter. Turning to cash flow. Our year-to-date cash from operations is $445 million. This performance reflects the results of net earnings and higher accounts receivable collections in the first quarter. Considering our first quarter results, our strong order book for capital equipment and continued positive procedural trends, we now expect full year 2023 organic sales growth to be in the range of 8% to 9%, with pricing to be relatively neutral for the year. If foreign exchange rates hold near current levels, we anticipated sales and EPS will be modestly unfavorably impacted for the full year being more negative in the first half of the year. This is included in our guidance. Based on our performance in the first quarter together with our strong sales momentum and further progressive easing of supply chain disruptions throughout the year, we now expect adjusted earnings per share in the range of $10.05 to $10.25. And now I will open up the call for Q&A.
Operator: Thank you. Our first question comes from Larry Biegelsen with Wells Fargo. Please go ahead.
Lawrence Biegelsen: Good afternoon. Thanks for taking the question and congratulations on a really impressive start to the year here. Kevin, I guess, I would just love to start with the growth rates we saw in Q1 in some of your businesses like both in Ortho and MedSurge. What in your view is, was there anything here that was a one-time here and what do you see that sustainable?
Kevin Lobo: Yeah, thanks, Larry for the question. You saw we had a great fourth quarter of sales growth, another great quarter. This quarter of sales growth. We did benefit from some softer comparisons given that Omicron was present in a lot of markets last year. But I would tell you that the procedures are really ramping very nicely and they have been really since the second half of last year, that's continued, and the capital demand remains strong. So we really have strength kind of across the portfolio of our company and that's what gives us the optimism to raise our full year guide.
Lawrence Biegelsen: So let me just follow up maybe for Glenn. If I'm doing the math right here, you raised the guidance by about 70 basis points to 80 basis points at the midpoint. The Q2 to Q4 organic growth, Glenn, and please correct me if I'm wrong, it implies about 7% at the midpoint. Is that close and kind of how are you thinking about the why the deceleration I guess and how -- and any color on the quarterly cadence from here? Thanks for taking the questions.
Glenn Boehnlein: Yeah, Larry. I will trust your math. The one thing I will say is that, as Kevin mentioned, Q1 maybe had a little bit of a softer comparable. Moving forward, we're going to see stronger comparables. And right now, we're still in the first quarter. So we're anxious and excited about how the businesses are performing, but we're still mindful of the environment that we're in and so we feel like this is a strong guide and imply solid performance.
Operator: Thank you. Our next question comes from Robbie Marcus with JPMorgan.
Robert Marcus: Great. I'll also add my congratulations on a really impressive quarter here. Maybe I had to focus in Ortho. I was kind of blown away by how good the growth rates were in hip, knee, and extremity. Would love to get a little more color on exactly what you're seeing there, how much the anterior hip stem is helping you in hip? What's going on in knee and any color you could give on the Trauma and Extremities business and what's driving the trends there?
Kevin Lobo: Yeah, sure. Thanks, Robbie. I would tell you that the knee performance is just a continuation of what you've seen for the past three or four years where all the Mako growth, the cementless growth, continues to fuel market leading growth. So that's not a new story. Some of the numbers OUS were pretty breathtaking. But part of that was due to softer comparables and part of that's due to really picking up Mako installations OUS. It continue to be strong in the US, but OUS has a much longer runway and started much later as you know. And so Mako will fuel that OUS growth in the same way that it's fueled our US growth for many years. So that's the knee part. On Hip, it's really a combination of the Insignia stem as well as Mako. The 4.0 software was launched within two years, in the last two years, that combined with Insignia really positions us beautifully for direct anterior and we really like the momentum that we're seeing in hips and we expect that to continue. Trauma and extremities has been a -- just a great story. The Wright Medical deal has turned out spectacularly well. The upper extremities business is absolutely on fire, the market leading business and grew very strong double-digit growth. And as well foot and ankle is really starting to pick up steam and had a very strong performance. So really all three of those Trauma and Extremities businesses, including Core Trauma had strong performances and the outlook for those businesses continues to be very positive.
Robert Marcus: Maybe as a follow-up, Medical came in another really good quarter there ProCuity launch continued strong. We heard one of your competitors, particularly in the Bed Market talk about a weaker capital environment. So is that something you're seeing in some of the less revenue generating capital equipment items and any color you could give specifically in Medical and how the Beds are going. Thanks.
Kevin Lobo: Yeah, so far, we're still seeing very strong orders for all of our capital equipment businesses, large capital, small capital. We still have healthy order books across the board. There is a bit of noise here now that you hear from some hospitals saying while they're starting to think about capital, but we're not seeing it in our order book at least not yet.
Operator: Thank you. Our next question will come from Joanne Wuensch with Citibank.
Joanne Wuensch: Good evening and thank you for taking the question and quite a nice quarter and I'm going to agree with some of the growth rate in hips and knees, particularly in the US were quite strong. I just want to take out picture a few things. Can you give us an update on where you think you are in the ASC and I'll throw in my follow-up now on updated thoughts on use of cash? Thank you.
Kevin Lobo: Yeah. The ASC joint continues its trend that we've been seeing for some time, continued progression in both hips and knees. We're now in double-digit penetration in both hips and knee little bit more knees, but both continuing I call it a steady progression and I don't think that will slow down. I think that will just continue over the next few years with the expansion into ASCs with construction projects with more and more procedures moving out and we're even starting to see some of the extremity procedures move out even some spine procedures. So it's a trend that will continue, but it's not something that's going to ramp exponentially because it's gated by construction and building out of new ORs. So it just takes time. And then the second question was on?
Jason Beach: Cash flow?
Glenn Boehnlein: Use of cash.
Joanne Wuensch: Well, use of call.
Glenn Boehnlein: Sure, Joanne. I mean, it was honestly a strong quarter for cash flow for us, coming in at $445 million. I will tell you that we benefited from elevated receivable levels as we exited Q4 last year. As we think about sort of the priorities for cash flow, we really haven't changed, sort of how we think about first of all, we want to focus on paying down the term loan. We paid $100 million in Q1. The remaining balance of $750 million we will plan on paying-off during this year. We're also seeing. We're closing on Cerus Medical. That will happen fairly shortly here. And so we are allocating some cash to M&A. Teams are still working and we're still being fairly choosy in terms of looking at opportunities and making sure we're lining up things for when cash flow frees up a little.
Operator: Thank you. Our next question comes from Vijay Kumar with Evercore ISI.
Vijay Kumar: Hey, guys. Thanks for taking my question and congrats on a really strong start here. Kevin, maybe my first question here on the performance here on the Ortho side. I guess there's a lot of moving parts. Is this -- there some thoughts on perhaps we're seeing a pull-forward of demand and recessionary fears as against the counter to that is share gain, given the new product momentum versus perhaps some of the backlog being here. Can you just lay out the different pieces here and what is happening in Ortho markets from Stryker's perspective. And related to that I'm curious on smart implants where Stryker on smart implants, given we just had an NTAP in that space.
Kevin Lobo: Okay. Well, there's a lot of questions in there, Vijay. So let me start first by saying that there really isn't a new story, right? The knee business continues its strong performance. The hip business, as we said, once we get into the Insignia Stem launch, we're going to start to be able to grow above market when you combine it with Mako and with the right combine it with Stryker, we have just an incredibly strong position in Trauma and Extremities. We just executed extremely well. The market is better and we said that there was going to be a tailwind. There's no new news there. There is a tailwind. I don't think it's pull forward. I think you're going to see that tailwind last we said six quarters was our estimate. So this is the first of six quarters where you're seeing that tailwind. Keep in mind. The comps are part of the story, not just for Stryker, for the entire market. The comps were affected by COVID in the prior year. And so you're going to see an elevated market growth this quarter. But I do believe the tailwind will continue into second quarter, third quarter, again, a moderate tailwind, but our ability to take advantage of our product flow and of course our sales force execution is something that I don't see changing. I think we'll continue to be able to perform very well relative to the market and the market is going to be a little bit more elevated. And then the smart implant. So, no, we don't have any current plans for smart implant. We do have the motion sense that we've launched, which is a wearable that measures both on the femur and the tibia. And so we're an unlimited launch on that. And that is a way to make sure that you can monitor post-operatively all the types of measures that you would be thinking about after the procedure. So that's our approach versus having it implanted in the body.
Vijay Kumar: That's helpful commentary, Kevin. Maybe one for Glenn here on gross margins in the quarter up sequentially. Glenn, how much of this is volume leverage given revenues came in you know above. I'm just thinking about fiscal '24 here. And again I'm not asking for guidance, but my understanding was Stryker is still seeing a lot of inflationary pressures here in '23. Most of it is the inventory flowing through the P&L, given pricing was positive and as inflationary impact a bit, how should we think about margin progression? Should we directionally be thinking of maybe perhaps above normal margin years for Stryker going forward?
Glenn Boehnlein: Yeah. I mean, you know, first of all, we're pleased and we've made some incremental progress. And that's kind of why I wanted to call out sequentially as being maybe a little bit more important as you look at margin year-over-year. If you look at just sort of in just for the quarter, some of the big things are really price. We did see reduced spot buys. But keep in mind, we're still amortizing those 2022 spot buys. So that's going to hit us on into third quarter. We also as supply evened out, it just allowed our manufacturing to be a little more consistent and drive better efficiencies. And so we kind of got back on driving better manufacturing efficiencies. The other thing we're seeing is that freight rates are monitoring and we're seeing improvement in those rates. The other the couple pieces, I would say, mix was a bit of a tailwind. Obviously, if you think about Ortho and Spine and the kind of gross margins they drive versus MedSurge, that was a little bit of a tailwind. I think that will continue to be a little bit of a tailwind as the year progresses. We are still tempered in this environment, this inflationary environment, though. And so that will keep a tamper. We're early in the year, Vijay, and we're not thinking that we want to guide on gross margin yet. I think we see some daylight and we feel good about that. But it will be a work in progress as the whole year pushes forward.
Operator: Thank you. Our next question comes from Matthew O'Brien with Piper Sandler.
Matthew O'Brien: Great. Thanks for taking the questions. Maybe to follow up a little bit on Larry's question on guidance. I share his math. As I look at the numbers, I think, you beat by a couple hundred million on the top line and kind of carry that through for the full year. And I think, Kevin, at Academy, you said you thought there would be a little bit of headwind on pricing. That might have just been an Ortho comment. But also staffing is getting better. So staffing better pricing seems like it's getting better. I think given where the stock was trading, people are expecting you to guide a little bit higher if you did beat. So why not guide a little bit higher for the full year or incrementally higher than the beat given what we're seeing in your markets and the supercycle just about to start? Thank you.
Kevin Lobo: Yeah. Thanks. So first of all, I'd tell you that we started the year with a pretty good guide and obviously had a very strong quarter. And we raised and it's only one quarter the supply chain, to Glenn's point, there are still, let's call them brushfires happening all the time that we're having to tamp out. And there we are not completely out of the woods on supply chain issues, which can cause uncertainty. Launches have to actually occur on time and be able to deliver what we hope they can deliver. That creates uncertainty. We had roughly almost 10% organic sales growth last year with a monster Q4. And so there's a lot of reasons why, you know, let's just temper our enthusiasm. It was a great quarter. I'm very happy with it. But we've moved it up. Let's see how things play out over the next quarter or two quarters before we get ahead of ourselves. And you've seen us in the past. We're not afraid. We don't have to raise once for the full year if things go well in the future, if the launch is hit on the right time, if we're able to sustain this kind of price performance then we can think about raising. But it's a little too premature to do that right now.
Matthew O'Brien: Okay. Makes sense. As a follow-up, Kevin. On Mako, I know more rentals. It just is because I look at the rest of the business on the capital side of things. You're not having any problem selling things. I know Mako is more expensive, but you've got (ph) out there, you've got VELYS from J&J and now you're doing more rental contracts. So I guess the interpretation from most of the investors would be that, hey, they're seeing more pressure in terms of the ability to sell Mako. Is that fair or are we just not able to see that you're still capturing your fair share of Mako sales and placements within the marketplace? Thanks.
Kevin Lobo: Yes. Just to be clear, we are very bullish on the future of Mako, and we have been. And if you look at our hip and knee number, that's a pretty good indicator that a lot of our growth comes from accounts that had Makos installed. If the competitors offer things for free, that obviously causes the customer to say, do I need to pay something upfront. And we've always had rentals and financing within the mix of offerings. In the past, they would be much more inclined to purchase. They're now leaning much more towards rentals. And honestly I don't -- it doesn't bother me at all. And then Jason, any comments on rentals?
Jason Beach: Yes. I think maybe just one additional comment relative to rentals. I think the thing to keep in mind is a large percentage of these rentals they'll flip to purchases, right? So it's not like they're going in and the units are coming back out. So, to Kevin's point, we feel really good about the Mako business.
Kevin Lobo: What I'd say competitive pressures have caused a little bit of a shift in customer behavior. That doesn't concern us. We are winning at a very high rate. And the Makos that are being installed are being used at a very high rate. And that's, to me, what's critical.
Operator: Thank you. Our next question comes from Ryan Zimmerman with BTIG.
Ryan Zimmerman: Thanks for taking the questions. And let me add to everyone's sentiment. I want to ask the guidance. I think others are kind of getting that around the progression of quarters for the rest of the year. But if you look at the guidance on the top line relative to the growth in guidance on the bottom line, specifically for Glenn, I'm just curious. It's a little higher on the top line doesn't quite flow through. And if there's anything in there that maybe you're reinvesting in Glenn, that you want us to think about specific to the EPS growth at 8.6% relative to the top line.
Glenn Boehnlein: Yes. It's a good question, Ryan. I think first of all, if you look at sort of the midpoint of both guides, sales and EPS, we actually are starting to show leverage. So I think that's a positive direction. We're still very early in the year. And we are going to be mindful that we're still in, as Kevin referred to, somewhat volatile circumstances relative to supply chain, some other macroeconomic factors. And so that causes us to make sure that we're being smart about where we land in the guide. To that point, as we see the quarters play out over this year, if we see improvement, I think, we'll definitely feel compelled to take the guide up.
Kevin Lobo: And we did have a little bit of a lower tax rate as you saw this quarter based on some discretes and stock comp and that's going -- we think start to get elevated over the next three quarters. So overall we really feel like we -- the guide is an appropriate lift both on the top and the bottom line.
Ryan Zimmerman: Okay. And then, Kevin, I'd love to get your perspective on the state of the spine market right now. There's obviously a lot of disruption, as you know. But NUVA Globus is progressing forward. As of right now, both parties voted to consummate that deal. Is there any disruption that you're able to capitalize on that we're seeing in your US spine numbers right now as they are starting to show some nice growth?
Kevin Lobo: Yes. I think it's too early right now for us to have really seen much in the way of disruption. I think the disruption will come once they start to bring the organizations together and decide which salespeople are calling on which surgeons and which products they're going to keep, et cetera. So there really hasn't been much in the way of disruption from both of the mergers that are just starting to happen in the space. I'm pleased about our Spine business momentum and it's really because of our own innovations. Some of the licensing deals that we've done, getting the Q guidance out, which is really getting very favorable attraction in enabling technologies. We've started to show our Mako Spine, which is also getting very, very good feedback, although that won't be launched until next year. But customers are warming up to that. So I think it's more about us focusing on our own business. And if we can bring the types of innovations that we need to the market, I think, we're going to continue to do well in Spine.
Operator: Our next question comes from Shagun Singh with RBC Capital Markets.
Unidentified Analyst: Hi there. This is Ken (ph) for Shagun Singh. Congrats on a nice quarter. Quick question on M&A. Can you talk about your appetite for M&A and remind us of the deal size that you would be willing to go for? And what respect the valuations you would look for as in the like what do you think about valuation right now? And then just for Kevin, can you call out interest -- like you've called out interest in our -- in five different adjacencies over the last couple of weeks in M&A. Can you talk about urology and women's health, the call point in that area? And if that makes sense for Stryker to have?
Kevin Lobo: Yes, sure. So let me start by saying that this year, to Glenn's previous remarks, we are focused on paying down debt and getting the term loan off the books. We are continuing to pursue what we call tuck-ins. And Cerus Endovascular is one of those tuck-ins, which we will close shortly. We have other tuck-ins that are in the works right now, and we'll see which ones of those happen this year. But this year is more of a year of tuck-in than it is doing billion type of deals. But as we get into next year, if we continue with the strong cash flow performance that we're currently experiencing, we will be back in the market for those larger size deals. The teams haven't slowed down their work. They're continuing to pursue discussions with many of our targets. Valuations are getting better, which is good. Interest rates are going up, which is bad. But on the overall basis, we think the market is still primed with many, many good targets. And we continue to believe that using our available cash for acquisitions as the first source of cash and the first use of our cash is the right strategy with Stryker is a key part of our growth formula. Specific to your question on women's health and urology, we do have a presence in urology with our Endoscopy division, and that is an interesting space that we'd like to build around over time. We do have some women's health presence also, a combination of part of the Instruments division as well as our Endoscopy division is present right now within breast care. So these are not markets where we're sort of absent, but we're already present to some degree. And if we could get a larger presence, that would be something that is one of many, as you mentioned, many adjacencies that we're looking at. And I think that's all I'll say for this earnings call.
Unidentified Analyst: Thanks so much for the color.
Operator: Thank you. Our next question comes from Josh Jennings with TD Cowen.
Eric Anderson: Hi. This is Eric on for Josh. Thanks for taking the question. I wanted to focus on your Mako shoulder and spine applications. I know we're still a ways off from commercial launch there. But could you just talk about the next steps in terms of development and the regulatory processes there? Are there any milestones that we should have on our radar for those applications? And the follow-up would just be on, are you able to share what sort of submission those applications would be to get clearance? Thank you.
Kevin Lobo: Yes. Listen, we're not going to get into all the details of the launch or specific milestones. Suffice to say that we are still very much on track with the time lines that we laid out last quarter. No change and continued really positive feedback from customers that we are exposing to the technology. We feel the regulatory path has gotten more certain, which is why we never provided dates prior because we weren't as confident on the regulatory path. These are complex launches. If something changes, we'll let you know. But right now, everything remains on track as per the last discussion we had.
Eric Anderson: Understood. Thank you.
Operator: Thank you. Our next question comes from Matt Miksic with Barclays.
Matt Miksic: Hey, good evening. Thanks for taking the question and I have to say, I'm not sure that congrats on the quarter quite adequately covers these numbers. I mean they're really just out of balance, I guess, in terms of these end markets. So a couple of follow-ups, if I could. It looks -- just looking at US knees kind of as one line item. It looks like you accelerated on -- obviously, just year-over-year, but also on a two-year stack basis into the first quarter. And just thinking about the drivers there and how sustainable they are. You obviously had a big leading market in robotics. We all know how that has worked out. Wondering if you could talk about how you feel about the lead you have in ASPs, and whether this could shape up to be kind of a similar long-term driver? And then just also on that subject, rentals came up earlier. I'm wondering what -- to what degree this rentals are really showing up more in the ASPs? I know there's a couple of questions in there, but I do have one follow-up on MedSurg, if I could.
Kevin Lobo: Yes, sure. Thank you. Yes, we have a very significant lead in robotics. We have a significant lead in cementless, and we have a significant lead in the ASC. So we have all three of those factors are at play and contributing to strong performance. And you are right, in the ASC, they tend to shift much more towards rentals or let's call it, forms of financing that -- because there's always physician ownership as part of these deals, and they don't have the capital budget that hospitals do to make a purchase, so they do prefer financing. And so you'll continue to see that with ASCs much more of a shift towards rentals. And we're seeing with ASC's strong demand for Mako, which is really exciting for us. And so if there's a there OR orthopedic ASC, usually, at least one of those will have a Mako in them. And that our offense plays very well for that given all the other technology we can provide for the ASC. So those -- I would say all three of those factors are really at play having significant leads across those three tenants.
Matt Miksic: That's super helpful. Thank you for the color. And then on MedSurg, just specifically, your back order, your order condition as they're sort of stable. I'm wondering, have you started to see some of the back orders specifically start to move or accelerate or thoughts and timing on that? And then the factors you mentioned still expecting Vocera to accelerate. Maybe just an update on some of the factors that you're expecting to drive that acceleration? Thanks.
Kevin Lobo: Yes. So back -- if you think about medical, medical is going to have another very strong year this year. Even though you saw a boomer in the fourth quarter, I did signal that medical will still have another strong year. They have the largest backlog of all the divisions of our company right now and that's across emergency care as well as acute care. The largest is within medical. And so we're still fighting the supply chain is getting better every month, but it's still not easy. Out there in the supply chain for medical, and then the other capital businesses follow behind medical. So still a very, very strong order book. And what was the second? And on Vocera, yes, we're really pleased. We predicted this, right? If you go back to second quarter of last year, we said -- we're going through some disruption or making changes to the way that we go to market and in the commercial model. We're pushing much more towards the cloud. So very intentional decisions and things have played out basically as we thought. Their orders are also -- have also picked up pretty meaningfully. And we do expect to see an acceleration starting in Q2 based on the orders we already have in the system. We know that, that's going to start to be a nice contributor. And then given how much we pay for Vocera, we will provide some more metrics on that at the end of the year, and we plan to probably do that on an annual basis as we do with Mako.
Operator: Thank you. Our next question comes from Travis Steed with Bank of America.
Travis Steed: Hi. Thanks for taking the questions. I guess and congrats on another quarter as well. I wanted to break down Q1 a bit more. A lot of companies have mentioned January was really the strong month where there was a comp benefit. So curious how you saw February and March shape up and even April. And I heard you say procedures were ramping over the quarter. So that implies April even kind of better in February and March. Just any kind of color you can give on the shape of the quarter and how things are trending across the different businesses would be helpful?
Kevin Lobo: Yes, I'd say January and February are both very strong versus prior year because they were -- those two months were more affected. Last year, March was a little bit, let's say, more muted than the first two months. And then I would say April has continued at good levels. So when I say ramping, it was really sort of over last year's fourth quarter into this year's first quarter, April continues to be strong. Just these elevated procedure levels are not that different between January, February, March or April. It's just more about what the comparators were in the prior period. But continue to expect good volumes overall.
Travis Steed: Great. Thank you. And then -- and Glenn, maybe touch a bit more on the margins. If you can help quantify some of the supply chain purchasing improvements we've seen so far but just come from the higher costs rolling off. And then maybe longer term, the path back to the -- is there a path back to the 2019 gross and operating margins?
Glenn Boehnlein: Yes, sure. A couple of things. Like as we think about spot buys just in absolute dollar terms, we had a significantly less amount of purchases through that spot buy channel in Q1. And so we know that as we see 2022 impact amortize off, we're not really adding to that. So I do know that, that will give us a little bit of lift in the back half of the year. I also think mix is helpful as Ortho procedures continue to ramp, as Kevin mentioned. The other big thing will be these new product launches. We usually gain price on these sort of next-gen products that we put out there. And while that's not specifically in the price component that we quote, it definitely will help margin. In terms of the path back to 2019, that is a question that we get fairly frequently. I would tell you that we're hyper focused on regaining sort of our position on gross margin, obviously, going after that by being as aggressive as we can on price and putting in really good programs that will help on the price side. We're seeing improved manufacturing efficiencies in other areas, which also are going to drive. I don't foresee that, that would happen this year. But that, beyond this year, we definitely are focused on what the pathway would be back to that.
Operator: Thank you. Our next question comes from Steve Lichtman with Oppenheimer & Company.
Steven Lichtman: Thank you. Congratulations, guys. I guess, Kevin, tracking comps over the past three years, obviously, has been a challenge. I was wondering if you could give us your perspective on where you think underlying volume growth is for the joint recon market now.
Kevin Lobo: Yes. I think if you go back to 2019 and call that the last normal year that we've had. I would say we are fully backed to 2019 and actually growing from that. So you're right, it's very difficult to look at comps. You've got -- just look at last year, you have to look at how it was last year versus the year before. So it has been very tricky, to your point. But I think we're now in a kind of post-pandemic world. Even though we do have staffing shortages here and there, the surgeons are as busy as they've ever been. If they had sometimes some more stuff, I think you do even more. But I would say we're in a very good position in the market. There's healthy demand. Hospitals are learning how to get more procedures done. And so I would say we're fully back to the 2019 in most parts of the world. Maybe China is a little different. Outside of China, everything else is kind of fully back and building kind of what I'll call a normal growth rate off of being fully back. And of course there is pent-up demand.
Steven Lichtman: Right. Thanks for that. And then just a follow-up. You talked about the pricing actions last quarter, and obviously, those have kicked in, as you noted, particularly in Orthopedics, a nice step. What is the sustainability of that sort of level of pricing you're able to hold here this year, particularly in Orthopedics? Is this something that we could see sort of steadily fold in over the next few years? Is there some kind of catch-up this year that we maybe shouldn't count on as we look beyond? Any sort of color on that would be helpful.
Glenn Boehnlein: Sure. I mean, first off, we're super excited that these pricing programs that we put in place last year are really starting to take hold and we're seeing an impact. MSNT continues to perform fairly positive. I would expect that they'll continue to perform at a positive or near positive level throughout the full year. Ortho is a little bit more complex. It's heavily driven by contracts. The impact of pricing can vary depending on the anniversary of those contracts. So really going after Ortho and just trying to manage that to be a little less negative. And then as you look at that price that we put out, it's impacted by mix. These product introductions are going to impact that. And I would say that all of these factors kind of go into where our forecast was that, yes, Q1 was great. But as we anniversary these pricing programs, as we see new products come out, we're going to see a little moderation of the impact of that price and that's where we're holding right now as the year progresses.
Operator: Thank you. Our next question comes from Rick Wise with Stifel.
Rick Wise: Good afternoon. Hi, Kevin. Hi, Glenn, I want to ask for a little more color, if we could, on SG&A. I know you're reluctant to get into forecasting or talking in too much detail about specific lines. But the SG&A was a lot higher than I expected this quarter. Yes, volumes were higher, so was it higher commissions? And as I look at last year, and I know there's a million moving pieces here, but you started out $1.5 billion in SG&A. And it was roughly approximately that in each quarter. So is this start to the year giving us some sense of how to think about SG&A in the second, third, fourth quarters as well? Thank you.
Glenn Boehnlein: Yeah, that was great question. I mean first and foremost, as you mentioned, the most variable item in SG&A really relates to sales commissions, and relates to these tiered programs that we have for our reps. And as they really perform and perform at quota, we pay them well. I think the second thing, some of the things that happened in first quarter, we invested in order to support these high-growth levels, and this means hiring sales reps. This means full on national sales meetings, and you're seeing the sort of quarter-over-quarter impact of those things. I think in the background, we definitely still have this inflationary environment that obviously impacts some of those things that flow through SG&A. We had merit increases that also hit in Q1. I think that SG&A should moderate -- moderate somewhat over the remainder of the year and Q1 is a little higher because of those factors I mentioned. But I also would say that we are sort of trending toward a more kind of normalized, pre-pandemic level of SG&A spend as it relates to a percent of sales.
Rick Wise: Great. And one other question to touch on sort of a side topic a little bit. But smoke evacuation, I know you've talked about a lot in the past, Kevin, and we've seen three states. I think if I'm remembering correctly, Oregon, New York, New Jersey, smoke bills going into effect this year, 10 additional states in the pipeline. I know it's not all driven by state legislation, but nurse associations, et cetera, continue to want to move in this direction. Any update there? Are you still excited about this? Is this still going to be an above-average growth area for Stryker? Thanks so much.
Kevin Lobo: Yes. Thanks, Rick. Definitely excited about smoke evacuation. We now are at 11 states that mandate smoke evacuation with another roughly 10 that have sort of legislation that's pending, that will likely pass. It will be a tailwind for growth, for sure. We have that business captured in both a little bit of endoscopy and also in instruments just based on our portfolio of products. Both grew well north of 20% in the first quarter and that will continue as more and more states adopt. So definitely bullish on smoke evacuation. We're still in the early stages. And absolutely with nursing shortages and nursing demands for safety, it plays very, very well.
Rick Wise: Great. Thank you.
Operator: Thank you. Our next question comes from Matthew Mishan with KeyBanc Capital Markets.
Matthew Mishan: Good afternoon. Thank you for taking the questions. Not to harp on like the one outlier, but I guess on neurovascular. Could you comment on like on some of the weakness there? And how you expect that to progress through kind of 2023?
Jason Beach: Yeah, Matt, it's Jason. I'll take this one. And I'd say a couple of different things as you think about neurovascular. First off, in the US, you obviously saw in the first quarter, we returned back to growth. As we look at the rest of the year, we're pleased with the progress in the first quarter, and we think that will continue throughout the year in the US. As you think about international, right? As you all know, it's a dynamic environment in China with VBP. So that will be volatile. We did experience some VBP activity in the first quarter. You also know that China overall is a bit of material, so I won't get into the specifics of the impact in China, but it is included in our guidance.
Kevin Lobo: Yeah. For NV, China was a pretty significant business. For overall Stryker not so much, but it was for NV. And so that negative you're seeing is really entirely driven by China in the international Neurovascular business.
Matthew Mishan: Okay. Excellent. And then just on the other line where Mako is and I realize it's not all Mako in there. Just at what point do you expect to lap how customers are purchasing Mako and potentially start showing some growth in that line?
Jason Beach: Yes. I'll take this one. As you can imagine, when you think about deal mix and some of the things that go into that line, it will continue to move around as we go throughout this year. And as you start to get into next year, certainly, you would expect to see that line turn to positive. But it is going to be driven by deal mix as we go throughout this year.
Matthew Mishan: All right. Thank you.
Operator: Thank you. Our next question comes from Imron Zafar with Deutsche Bank.
Imron Zafar: Hi. Good afternoon. Thank you very much for taking my question and congratulations on a great quarter. I wanted to ask about the 1788 Camera in Endoscopy. Can you just quantify first how TAM expensive that could be? And then how much potential there is for share gain with that camera? Once it sounds like it could be a little bit more needle moving than we've seen in prior launches for HD cameras? Thank you.
Kevin Lobo: Yes. Thanks for the question. I wouldn't think so much about expansion of TAM, I would think much more about share gain. Because we're still basically in procedures that are using visualization. We're not creating new visualization for new procedures. But the reason I think it plays well for share gain is we have much better solutions for both sports medicine as well as neuro procedures. We were always fabulous with abdominal surgery, general surgery, but not quite as strong in those two specialties. And then being able to light up new fluoro force, new imaging agents to be able to detect cancer, that's game changing, right? We will be first to the market in being able to identify new forms of cancer. We will share that when those launches occur. We'll actually share that with you. But that will be a tremendous catalyst to drive share gain when you can identify critical parts of the anatomy much more precisely than the human eye can. And so we're very bullish on the long-term future for 1788.
Imron Zafar: Okay. Thank you very much.
Operator: Thank you. Our next question comes from Richard Newitter with Truist Securities.
Richard Newitter: Hi. Thanks for taking the questions and congrats on the quarter. Kevin, just on Mako and ASCs, and forgive me if this is a naive question, just not the way things work. But just given that you're involved so early with so many instances where ASCs are getting resurrected or built out. I'm curious, does that give you an opportunity to feed or get a robotics conversation or consideration, capital placement conversation going very early? And I'm just wondering if that is kind of happening right now?
Kevin Lobo: Yes. Being on the ground floor for ASCs is helpful for all of our capital equipment. And the fact that we can provide a lot of what they need really helps -- it puts us in a good position, because we're on the ground floor. And Mako speaks for itself. It's brand. It's very strong in the market. *13 are very well aware of Mako and they're asking for it. But I think it gives us an advantage, frankly, not just for Mako, but for all of our capital equipment businesses. Being so involved we're in the conversation, making it easy for the ASC to be able to not only design the ASCs, but actually be able to speed up the construction of the ASC if they partner with one company that can provide a lot of what they need.
Richard Newitter: Yes. And kind of a similar tag-on question to that. You've been asked in the past about cross-selling or across service lines. You've said that just hospitals haven't moved as quickly along the path of being able to negotiate one product area for another and thinking along those lines. Is the ASC kind of further along on that negotiation process? And I'm just curious if you guys have an advantage there where if you start to tack on additional adjacencies, you might be able to actually facilitate cross-selling with your strong foothold with the procedures that you're already in now and you’re -- the capital equipment businesses? Thanks.
Kevin Lobo: Yes. Certainly, for the ASCs, within orthopedic ASCs, they are buying really across product lines. They're still within the service line, but yes, they are buying capital. They're buying disposables, they're buying implants. And versus hospitals, that tend to stick at the product category level. This has been a shift with ASC for sure. But they're not buying across into a new service line like orthopedics or general surgery, because these ASCs are either orthopedic ASCs or they are GI ASCs or general surgery ASCs. So they are quite specific. But within Orthopedics and the Orthopedic ASC, they are absolutely buying across product categories and that definitely plays to our advantage because we're very deep within these service line, service line of orthopedics and obviously, neuro.
Operator: Thank you. Our next question comes from Danielle Antalffy with UBS.
Danielle Antalffy: Hey, everyone. Good afternoon. Thanks for taking the question and congrats on a really strong start to the year. Just one quick question for me and sorry to harp on this, it has come up a few times on the call. But -- just as we look at the margins, not a lot of margin upside in the quarter. I appreciate you still have inflationary pressures and inventory rolling off the balance sheet that's impacting that. But wondering if you could talk a little bit more about anything specific that happened in the quarter given such a strong sales beat and you're talking positive pricing commentary. So just sort of reconciling in line margins given the extent of the sales beat. Thanks so much.
Glenn Boehnlein: Yes, Danielle, good question. I hate to kind of be a broken record and reiterate some of the things that we did talk about. But I would tell you that -- you're absolutely right. We are feeling the higher product cost that came through towards the end of last year is now flowing through this quarter. And not a lot of upside is going to come from that. As I look at sort of upsides that we did see, this price is an upside that certainly helped us with margin. I would also say and I don't want to make light of it, but these improved manufacturing efficiencies and improved freight rates, although smaller, still incrementally helped us as well. And as the year goes on, as we feel the impact of those will become more significant. And so I think you'll see moderate improvements as the year goes on. Keep in mind, though, that mix is going to cause some fluctuation. And then we do have this underlying kind of inflationary environment that is a little bit of a headwind.
Danielle Antalffy: Thank you.
Operator: Thank you. Our next question comes from Jeff Johnson with Baird.
Jeffrey Johnson: Yes. Thanks. Good afternoon, guys. Two quick Mako questions here. Just, Glenn, first, what are the margin implications on kind of this leasing, this pickup in leasing on Mako? Is there anything good or bad that, that does the margin line? And when these contracts convert over to a sale, let's say, in six or 12 months, any margin implications then?
Glenn Boehnlein: Yes. Honestly, rentals have been part of our plan. And so as we look at sort of how we're attacking the market, we're focused on placements. And to Jason's point, if customers prefer rentals or if they are less inclined to put the upfront money forward just because maybe competitors are placing products for free or things like that, we're more than willing to spread out this purchase price over any period of time that they're interested in. I mean oftentimes these rentals convert within a one year or two year to a purchase, and then we'll gain back the purchase price. I would tell you that in the context of our entire sales portfolio, it's just not a material number in terms of how it could move. So we are very happy to do rentals. Honestly, we want to just increase the Mako footprint.
Jeffrey Johnson: All right. Fair enough. And then discussion here on competition and if competitors are going to offer no cost rentals or whatever no upfront, but then you guys as well, when you're happy with that as well. I guess the other thing I keep hearing out in the field, and we just want to cross check this with you. I mean the hospitals are kind of allocating more capital towards procedural tools, things that take care of the patients that are coming back in the hospital, less towards nonrevenue generating CapEx. I would assume that's another kind of thing that's impacting Mako at this point, too, right? I mean the hospital can put more towards your power tools in your Endo camera and get the rental upfront, it's a good allocation for them to go that direction and get kind of the best of both worlds. So I assume it's not just competition. There's a little bit here of just hospitals reallocating the procedural tools right now in the current cycle we're in.
Jason Beach: Yes, Jeff, it's Jason. I'll jump in here. I mean what I would say is, to your point, there's different buckets of money that a hospital has to defense here, right? And so if they have operational expense, if you will, that they can use to place a Mako or something like that, and they may be a little tighter on the CapEx side, it certainly is a lever that they have. And to Glenn's point, we're super happy to help them with that. So it is an option for them. And again, one that we're certainly happy to partner with them on.
Jeffrey Johnson: Thank you.
Operator: Thank you. Our next question comes from Jayson Bedford with Raymond James.
Jayson Bedford: Good afternoon. Thanks for taking the question. I realize we're getting a little late here. But I wanted to get back to the Ortho strength, but maybe come at it from an international angle. The growth in the quarter was quite strong, admittedly off a lower base. But are there similar factors relative to the US driving the growth, meaning a better staffing environment, backlog capture? Or is there another kind of more dominant factor driving the international Ortho growth?
Kevin Lobo: Yes, I'd say it's really the same factors. So the nursing situation has gotten better. Just dealing with COVID, that did affect us in the first two months of last year, in Australia, in Europe, in many of these markets. And I would say that Mako is now really starting to pick up steam in many of these markets. It took a little longer than it has in the United States, but that's a contributor. Cementless is also growing pretty rapidly in certain markets around the world, some slower than others. But I would say it's the same factors at play. Not ASCs so much. I know in the UK, they're looking at potentially starting to have some ASCs. That's a very small factor outside the United States. But the other two factors of really getting procedures back up and running, doing a better job dealing with nursing, there are still issues here and there. But getting those back patients or as a patient backlog like there is here in the United States, so people who have been putting off their procedures now wanting to get their procedures done. So I would say it's a very similar dynamic in other parts of the world. But again, our head starting robotics, our head start in cementless does position us well, and we are extremely pleased with the performance internationally in the first quarter.
Jayson Bedford: Okay. That's helpful. And maybe just a quick one for Glenn. You kind of touched on this earlier, but pricing, it was what, 70 basis point good guy in 1Q, the annual guidance calls for a relatively neutral pricing for the year. Is it primarily a mix dynamic, acting as the biggest potential weight on price over the next few quarters? I'm just kind of wondering what would pressure price over the next three quarters?
Glenn Boehnlein: Yes. I mean it's -- mix is one factor. I think some of the other things are -- these pricing programs are going to anniversary in Q3 when we kick them off. So year-over-year, it just won't show up as a big a difference. The other thing I would say is on this product super cycle, those products are launched. They're not included in the pricing calculation because they're next-gen models of the previous old models. And we really only compare like-for-like. So that's a little bit of a factor that, honestly, will help us on the top line because those products generally go out at much higher prices than the predicate product. And so I think if you take all that together, we just believe right now that we anticipate landing prices neutral for the full year, which honestly we'll still take as a win.
Operator: Thank you. Our last question comes from Kyle Rose with Canaccord.
Kyle Rose: Hey, thank you for taking the question. Just wanted to ask overall on the capital side. I mean, obviously, you've talked about the capital super cycle that you have. I'm just wondering if you could compare and contrast some of the maybe new build out demand versus replacement demand? I think if I remember correctly, Kevin, last year, there were staffing shortages on things like the construction side of things. So just if you could help us understand what the new build out demand looks like. And then overall split between small and large capital would be very helpful. Thank you.
Kevin Lobo: Yes. So sure, most of our demand comes from replacement, certainly on small capital by far. On large capital, there's -- it does tilt quite a bit more towards construction. There are still a lot of construction activities that are still underway. Some of them got delayed because they just couldn't get supplies, because they had staffing challenges. So there was a bit of push in some cases. But we have a really healthy order book, whether it's Mako, whether it's Beds, whether it's our booms and lights, pretty healthy order book. And those businesses have been performing very well. So -- and those tend to be kind of a six month, we have a forward look for about six months. And so right now, we're seeing pretty healthy demand across all of our small capital as well as large capital businesses. And we'll see how that plays out in the future. But at least we have pretty good visibility, at least for the next six months, that things are good, and we're going to expect continued strong performance in all of our capital business.
Operator: Thank you. At this time, I will now turn the call back over to Kevin Lobo for any additional or closing remarks.
Kevin Lobo: So thank you all for joining our call. As you can see, we had a very strong first quarter. We've raised our guidance and we look forward to showing our Q2 results with you in August. Thank you.
Operator: This concludes today's call. Thank you for your participation. You may disconnect at any time.
Related Analysis
Stryker Upgraded to Buy at BofA Securities
BofA Securities analysts upgraded Stryker (NYSE:SYK) from a Neutral rating to a Buy, while also raising the price target from $310.00 to $315.00.
The analysts' rationale for the upgrade centers on several factors, including Stryker's improved outlook on profit margins, a positive product cycle that could boost revenue growth, strong capital visibility through 2024, a favorable orthopedic segment outlook, and the potential for enhanced operating margins, which could lead to a 2% increase in earnings per share.
As a result, the new price target reflects the same 27x multiple for 2024 earnings but with slightly higher expected EPS.
Stryker Shares Down 2% Despite Q1 Beat & Raised Outlook
Stryker (NYSE:SYK) shares were trading more than 2% lower intra-day today despite the company posting strong Q1 earnings and raising its 2023 outlook.
Q1 EPS came in at $2.14, better than the Street estimate of $2.01, driven by broad-based growth, especially in Orthopedics. Revenue was $4.8 billion, beating the Street estimate of $4.56 billion.
The company raised its 2023 organic sales growth outlook to 8.50% at the midpoint (range: 8.0–9.0%) and EPS guidance to $10.15 at the midpoint, ahead of the Street’s 7.3% and $10.03, respectively.
Management expects the strong business momentum to continue throughout the rest of the year with a strong order book and a “super cycle” of new products.