Biotech Values

[DewDiligence]

SYK Reports 2Q10 Results

[SYK’s share price is down 10% since the company reported 2Q10 earnings nine days ago, so one might think they had a very bad quarter. Not so—sales grew 8% year-over-year (helped marginally by an acquisition [#msg-44045285]), and EPS grew 10% YoY. Despite these decent numbers, the stock sold off because growth in the orthopedic segment, which accounts for 59% of sales and is the focus of investors and analysts, were soft. On the other hand, sales in the medical/surgical segment, which makes a wide variety of hospital supplies, were unusually strong at +16% YoY. There’s a modicum of irony here insofar as the medical/surgical segment was what the worrywarts were worrying about in 2009 when they feared that hospitals’ capital expenditures would fall to zero and never recover. Now that this thesis has been disproven, the worrywarts have a new concern: that ObamaCare and European austerity will crimp margins on orthopedic implants.

At the current share price of 46 and change, the P/E based on SYK’s 2010 EPS guidance of $3.20-3.30 is about 14x, which is not expensive for an industry-leading company that’s a direct beneficiary of The Global Demographic Tailwind and has some buyout vig. As people throughout the world get older, richer, and fatter, the demand for orthopedic implants ought to remain strong (#msg-36422709). Moreover, in this field, the barriers to entry for competitors are sky-high. All told, I consider SYK a core healthcare holding. It is one of my 5% picks in the 2010 SI charity contest.

Please see actual PR for financial tables.]

http://finance.yahoo.com/news/Stryker-Reports-8-Sales-prnews-184719774.html?x=0&.v=1

›Stryker Reports 8% Sales Growth, 10% Net Earnings Growth for Quarter Ended June 30, 2010

July 20, 2010, 4:00 pm EDT

KALAMAZOO, Mich., July 20 /PRNewswire-FirstCall/ -- Stryker Corporation (NYSE:SYK - News) reported operating results for the quarter ended June 30, 2010 as follows:

Second Quarter Highlights

• Net sales increased 6.9% on a constant currency basis (7.6% as reported) to $1,758 million

• Orthopaedic Implants sales increased 1.4% on a constant currency basis (2.2% as reported)

• MedSurg Equipment sales increased 15.9% on a constant currency basis (16.4% as reported)

• Net earnings increased 9.5% from $291 million to $319 million

• Diluted net earnings per share increased 9.6% from $0.73 to $0.80

"Our second quarter results reflect the underlying strength of our diverse product offering and global presence, which is allowing us to continue to deliver on the goals we outlined at the start of 2010," commented Stephen P. MacMillan, Chairman, President and Chief Executive Officer.

Net sales increased 7.6% to $1,758 million for the second quarter of 2010. On a constant currency basis, net sales increased 6.9% in the quarter.

Net earnings for the second quarter of 2010 were $319 million, representing a 9.5% increase over net earnings of $291 million for the second quarter of 2009. Diluted net earnings per share for the second quarter of 2010 increased 9.6% to $0.80 compared to $0.73 for the second quarter of 2009.

Sales Analysis

Domestic sales were $1,160 million for the second quarter of 2010, representing an increase of 10.8%, as a result of higher shipments of Orthopaedic Implants and MedSurg Equipment.

International sales were $598 million for the second quarter of 2010, representing an increase of 1.8%. The impact of foreign currency comparisons to the dollar value of international sales was favorable by $11 million in the second quarter of 2010. On a constant currency basis, international sales were flat in the second quarter of 2010, as a result of higher shipments of MedSurg Equipment partially offset by lower shipments of Orthopaedic Implants.

Worldwide sales of Orthopaedic Implants were $1,036 million for the second quarter of 2010, representing an increase of 2.2%. On a constant currency basis, sales of Orthopaedic Implants increased 1.4% in the second quarter of 2010, based on higher domestic shipments of hips, knees, and trauma implant systems.

Worldwide sales of MedSurg Equipment were $722 million for the second quarter of 2010, representing an increase of 16.4%. On a constant currency basis, sales of MedSurg Equipment increased 15.9% in the second quarter of 2010, based on higher shipments of surgical equipment and surgical navigation systems, endoscopic and communications systems and patient handling and emergency medical equipment as well as sales growth through acquisitions.

2010 Outlook

The financial forecast for 2010 remains unchanged and includes a constant currency net sales increase of 5% to 8% as a result of growth in shipments of Orthopaedic Implants and MedSurg Equipment. If foreign currency exchange rates hold near June 30, 2010 levels, the Company anticipates an unfavorable impact on net sales of approximately 1% to 2% in the third quarter of 2010 and approximately 0% to 1% for the full year of 2010. The Company projects that diluted net earnings per share for 2010 will be in the range of $3.20 to $3.30, an increase of 8% to 12% over adjusted diluted net earnings per share of $2.95 in 2009.

Conference Call

As previously announced the Company will host a conference call for financial analysts at 4:30 p.m., Eastern Time, today to discuss the Company's operating results for the quarter ended June 30, 2010 and provide an operational update. To participate in the conference call dial 800-901-5217 (domestic) or 617-786-2964 (international) and enter the participant passcode 27026085. A simultaneous webcast of the call will be accessible via the Company's website at www.stryker.com. The call will be archived on this site for 90 days. A recording of the call will also be available from 8:30 p.m., Eastern Time, on Tuesday, July 20, 2010, until 8:30 p.m. on Tuesday, July 27, 2010. To hear this recording, dial 888-286-8010 (domestic) or 617-801-6888 (international) and enter the passcode 20717533.‹