Stryker beat analyst earnings forecasts in the first quarter as a result of better-than-expected performance at its medical and surgical equipment unit.
Soaring demand for MedSurg instruments drove the unit to 9% organic growth and helped to push Stryker’s earnings per share a few cents above the $1.84 forecast by analysts.
Stryker raised the bottom end of its full-year guidance on the strength of the results but its earnings outlook for the second quarter came in below analyst expectations, contributing to a drop in its stock price.
MedSurg led organic growth at Stryker in the first quarter as strong demand for instruments such as power tools offset weakness in some international markets, notably Australia and Japan. The 17.5% increase in sales of instruments is partly a product of the unit's relatively-weak performance a year ago but nonetheless caught Stryker by surprise.
"Candidly, it came in better than we expected. We did split the sales force at the start of the year and that really helped bolster the revenue," Katherine Owen, VP of strategy and investor relations at Stryker, said on a conference call with investors to discuss the results.
The neurotechnology and spine unit posted stronger overall growth than MedSurg but was far more reliant on acquisitions. Organic growth at the unit came in at around 8%, in part due to a mid-teen increase in sales of neurovascular products. Acquisitions, notably the $1.4 billion takeover of spine business K2M, added 15% to growth of the neurotechnology and spine unit.
Stryker raised the bottom end of its full-year guidance by five cents following the forecast-beating first quarter results but its outlook for the second quarter still fell short of analyst expectations. The company expects EPS of $1.90 to $1.95. Analysts went into the first quarter expecting Stryker to hit the upper end of that range.
The ability of Stryker to meet its own forecasts and those of analysts will rest on a handful of key growth drivers. Stryker expects demand for, and use of, its Mako robotic-arm assisted surgery devices to continue to grow in the coming quarters. Customers installed 35 robots in the first quarter, up on the 28 installed a year ago, and procedures increased by 80%.
Stryker is also looking to new products to drive growth. The company recently introduced a 4K imaging system that it expects to start making a meaningful contribution to sales in the back half of the year. And it is closing in on the delayed introduction of the T2 Alpha nailing system.
FDA cleared both products for sale last year. Since then, the agency has taken some actions, such as the ban on sales of transvaginal mesh products, that have caused concerns in the medical device industry. Stryker CEO Kevin Lobo, who was recently named CEO of the Advanced Medical Technology Association, understands the concerns but thinks FDA continues to have a "very healthy relationship" with the industry.
"We've seen some decisions that the FDA has made which might be deemed a little bit abrupt. But overall our relationship industry with FDA has been very good and frankly has improved pretty measurably from five years ago. I don't think there's a big change going on in FDA," Lobo told investors.