Stryker Corporation Q3 FY2025 earnings call

• Strong organic sales growth of 9.5% for the quarter, with double-digit adjusted EPS growth of 11.1% despite tariff headwinds. • Organic growth driven by MedSurg, Neurotechnology, and Orthopedics; U.S. organic sales growth 10.6%, international 6.3%. • Completed 2 acquisitions: Guard Medical's NPseal products and advanced medical balloons. • Procedural volumes healthy, capital products demand strong, backlog elevated. • Inari integration progressing, with double-digit pro forma organic sales growth in Q3. • Investor Day on November 13 with product fair. • Adjusted gross margin 65%, favorable by 50 basis points; adjusted operating margin 25.6%, 90 basis points favorable.

MedSurg and Neurotechnology had organic sales growth of 8.4%, including 9.4% U.S. organic growth and 5.1% international organic growth. Instruments had U.S. organic sales growth of 11.5%, led by Surgical Technologies. Endoscopy had U.S. organic sales growth of 7.9%, led by Sports Medicine and core endoscopy, offset by lower Communications sales. Medical had U.S. organic sales growth of 6.5%, with Acute Care double-digit growth, on track for 10% organic growth despite supply chain issues. Vascular had U.S. organic sales growth of 13.4%, led by Surpass Elite and Broadway. Neuro Cranial had U.S. organic sales growth of 12.9%, led by IBS, Craniomaxillofacial, and Neurosurgical. Orthopedics had organic sales growth of 11.4%, with 12.9% U.S. growth (Knee, Trauma, Extremities, etc.) and 7.8% international growth.

• Raised full-year 2025 organic net sales growth to 9.8%-10.2%, adjusted EPS to $13.50-$13.60. • Tariffs expected to have a net impact of approximately $200 million for full year 2025. • Full-year effective tax rate expected at lower end of 15%-16% range.

• Tariff headwinds, which picked up meaningfully versus Q2. • Supply chain disruptions affecting emergency care in Medical. • Churn in Inari sales force initially, though stocking issues expected to be resolved by end of Q1 2026.

Q: Congrats on a nice quarter. Two for me. First, Kevin, you always have great insight into procedure volumes and the equipment market...

A: Yes, sure. Thanks for the question. I would tell you that nothing has really changed if you think about what we've said in the past couple of quarters...

Q: Maybe one for Preston. Your business every year has a big step-up third quarter to fourth quarter, both on sales and margins...

A: Absolutely, Robbie. I appreciate it. So I think the thing to keep in mind as you think about the guidance range, particularly as we talk about margins, obviously, we do have a larger sales number that we'll be building on...

Q: Kevin, you're guiding to 10% organic growth at the midpoint in 2025. How are you thinking about maintaining this momentum next year?...

A: Yes. Sure, Larry. We have an Investor Day coming up pretty soon, and we'll share kind of our longer-term outlook at that time...

Q: Let me echo the congratulations on the quarter. Kevin and Jason, your Knee number in the U.S. stands out pretty in stark contrast to your other competitor that has announced the spin out of its Orthopedic business...

A: Yes. Sure. I'll take the first part, and I'll let Preston comment on the price pressure...

Q: I wanted to just get a sense of the competitive dynamics in the ASC. It's been a place where you've been leading and it's been a place where you've had great success in knees, opportunities for bringing other businesses in there and leveraging your position across some of the other business lines...

A: Yes. Thanks, Matt. Listen, we love the ASC and the trend in procedures moving to the ASC because we can leverage our full portfolio, and our growth continues to be very high in the ASC...

Q: One more question on Ortho. There's been an investor debate around the pull forward of demand of some neglected procedures due to the uncertainties around health care exchanges...

A: We see it as core growth market. As we enter fourth quarter, we're seeing a continued strong demand. So we don't really foresee any pull forward...

Q: So guess I just a couple more on Inari. So the PEERLESS II trial, just can you give us an update on where things stand with that and when we could potentially see the results?...

A: Yes. I'll take the second question on Artix. It's our first arterial thrombus product that Inari has launched, everything else was venous. It's been extremely well received...

Q: Just [indiscernible] question. And I guess this goes to margins going towards guidance here. But we're seeing positive price in MedSurg. You mentioned you anniversaried some price upticks in Q3 in Orthopedics. So how do we think about go forward from here?...

A: Dan, thanks for the question. So from a pricing standpoint, yes, I mean, we do believe that based on our overall execution of our business from a contracting perspective with new products and innovation across our portfolio, we will have opportunities from a pricing standpoint as we go forward...

Q: I just had one question on the upcoming Investor Day. I know last time you gave some targets on organic growth, operating margin, EPS growth and free cash flow conversion. I was wondering if those kind of targets will be laid out again?...

A: Yes, this is Jason. I don't want to spoil any surprises that you'll hear in a couple of weeks. But yes, you're absolutely right. We will update our long-term financial goals, including, I think Kevin mentioned earlier, kind of our current view on margins as well...