STRYKER CORP Q3 FY2024 earnings call

• Delivered robust organic sales growth of 11.5% in the third quarter, with strong double-digit growth in MedSurg and Neurotechnology and nearly 10% growth in Orthopedics and Spine. - Stayed active on the M&A front, completing several deals in the quarter, including acquiring Care.ai, NICO Corporation, and Vertos Medical. - Procedural volumes remained healthy, with strong demand for capital products and elevated backlog across capital businesses. - Latest platform launches like Pangea Plating system, LIFEPAK 35 defibrillator, and 1788 visualization platform are progressing well. - Adjusted gross margin was 64.5%, adjusted R&D spending was 6.6% of sales, adjusted SG&A was 33.2% of sales, leading to an adjusted operating margin of 24.7% of sales.

In the third quarter, MedSurg and Neurotechnology had constant currency sales growth of 12.9% and organic sales growth of 12.7%, including 13.2% organic growth in the U.S. and 11.2% in international. Instruments had 9.9% organic sales growth in the U.S., led by strong double-digit growth in the surgical technologies business. Endoscopy had 10.9% organic sales growth in the U.S. with strong growth across all businesses. Medical had 18.5% organic sales growth in the U.S. driven by strong performances across all of its businesses. Neurovascular had 1.5% organic sales growth in the U.S. due to supply chain issues and competitive pressures. Neurocranial had 16.1% organic sales growth in the U.S. led by strong growth in various products. Orthopedics and Spine had constant currency sales growth of 10.8% and organic sales growth of 9.7%, with 8.6% organic growth in the U.S. and 12.3% internationally. The U.S. knee business grew 8.4% organically, hip business 10.9% organically, trauma and extremities 11.8% organically, spine 2.4% organically, and other Ortho had a slight 0.6% decline organically.

• Narrowed 2024 expectations to the high end of previously provided guidance ranges, anticipating full year organic sales growth of 9.5% to 10% and adjusted EPS of $12 to $12.10. - Aim to achieve 200 basis points of margin expansion by the end of 2025, including 100 basis points of margin expansion in 2024 while offsetting dilution from M&A.

• Neurovascular segment faces challenges such as intense competition and supply chain issues. - Foreign currency exchange rates can have an unfavorable impact on sales, and if exchange rates hold near current levels, full year sales and adjusted EPS could be negatively impacted.

Q: Robert Marcus asked about the sustainability of Medical business growth and the impact of hurricanes on the fourth quarter.

A: Kevin Lobo stated that Medical business will continue to have double-digit growth and there will be no effect from hurricanes on the fourth quarter.

Q: Larry Biegelsen inquired about the sustainability of momentum in top-line growth in 2025 and the drivers of 100 basis points of margin expansion.

A: Kevin Lobo discussed initiatives like low-cost manufacturing sites, vendor management, shared services expansion, IT system rationalization, and office space rationalization as drivers of margin expansion, and expressed confidence in sustaining top-line growth momentum.

Q: Joanne Wuensch asked about the sustainability of ortho growth and early feedback on Mako Spine.

A: Kevin Lobo said ortho growth is sustainable due to factors like innovation and market positioning, and early feedback on Mako Spine is positive but early stages.

Q: Ryan Zimmerman asked about early thoughts on procedure environment into early 2025.

A: Jason Beach said there is no indication of a material slowdown in the procedure environment into early 2025.

Q: Travis Steed asked about LIFEPAK backlog, Medical growth acceleration, and installed base clarification.

A: Jason Beach said LIFEPAK backlog is healthy and contributes to Medical growth, and the 100,000+ is Stryker's installed base.

Q: Matthew O’Brien asked about Mako domestic installation and ortho market share confidence.

A: Kevin Lobo said Mako installations are steady and confident in ortho market share growth due to portfolio, talent, and culture.

Q: Vijay Kumar asked about Mako utilization percentage and procedure scheduling wait times.

A: Jason Beach said Mako utilization percentage details will be provided in January, and wait times are normalized indicating healthy procedure environment.

Q: Matthew Miksic asked about Mako leasing mix and ASC site of care color.

A: Glenn Boehnlein said more leasing and financing in U.S. vs OUS for Mako, and color on ASC site of care will be shared at year end.

Q: Steven Lichtman asked about Spine growth drivers and below-the-line expense guidance.

A: Kevin Lobo said enabling technologies like Mako Spine and Copilot are growth drivers, and below-the-line expense guidance for 2025 will be provided in January.

Q: David Roman asked about international business expansion opportunities and competitor exits.

A: Kevin Lobo said MedSurg has massive international expansion opportunities and competitor exits provide an opportunity to earn fair share.

Q: Christopher Pasquale asked about Vertos acquisition plans.

A: Kevin Lobo said Vertos acquisition is not a one-off, and the pain business will continue to grow with internal innovation and M&A.

Q: Jason Wittes asked about cementless knee dominance and hip business positioning.

A: Kevin Lobo said cementless knee dominance is due to long-term data and head start, and hip business is well-positioned with innovation and data.

Q: Michael Matson asked about Mako installed base advantage and pricing sustainability.

A: Kevin Lobo said installed base provides advantage for Mako expansion, and pricing is good with sustained efforts.

Q: Richard Newitter asked about M&A dilution and ischemic stroke business turnaround.

A: Glenn Boehnlein said M&A dilution is contemplated in guidance, and ischemic stroke business is being addressed with sales force changes and product improvements.

Q: Matthew Taylor asked about pricing trend sustainability and upside scenario.

A: Glenn Boehnlein said pricing guidance for 2025 will be provided in January, and upside scenario will be detailed then.

Q: Jeffrey Johnson asked about medical segment diversification and stability.

A: Kevin Lobo said medical segment diversification leads to more sustainable double-digit growth.

Q: Caitlin Cronin asked about M&A margin expectations.

A: Glenn Boehnlein said M&A is modeled for fast-growing markets and accretion over time, and Kevin Lobo said high-growth acquirers absorb early dilution for long-term accretion.

Q: Eric Anderson asked about competitor ortho restructuring impact.

A: Jason Beach said typically don't comment on competitor comments and continue with own offense.