Medical technologies major Stryker Corporation (SYK) is slated to report its second quarter fiscal 2012 results after the closing bell on Wednesday, October 17. The current Zacks Consensus Estimate for the second quarter is 98 cents, representing estimated year-over-year growth of 7.79%.
Second Quarter Flashback
Stryker’s second-quarter 2012 adjusted earnings per share of 98 cents was in line with the Zacks Consensus Estimate and exceeded the year-ago earnings of 90 cents a share. The Michigan-based orthopedic devices major’s profit (as reported) increased 4.8% to $325 million (or 85 cents a share) in the quarter on the back of higher domestic sales and margin expansion.
Revenues increased 2.9% (up 5% in terms of constant currency) year over year to $2,106 million, but fell short of the Zacks Consensus Estimate of $2,129 million. Revenues were driven by healthy sales across its three segments in the U.S., partially offset by a weak European economy and currency fluctuations.
Sales from the company’s core Reconstructive unit inched up 1.2% in the quarter to $927 million led by acquisitions in the trauma and extremities franchise. Hips and Knees sales disappointed in the quarter and the company expects continued pricing pressure in these segments. The company further expects weak European sales to adversely affect global reconstructive sales for the full year.
MedSurg sales increased 1.7% (up 3.3% in constant currency) to $786 million in the quarter, supported by gains from Sustainability Solutions and Instruments sales. Stryker’s Neurotechnology and Spine business jumped 10.1% (up 12.3% in constant currency) to $393 million, driven by the Orthovita and Concentric acquisitions, which offset the weak results of the core Spine business.
Estimate Revisions Trend
Agreement
Estimates for the third quarter hardly demonstrate any activity over the past week and month. The past 7 days have seen none of the twenty three estimates change for the quarter in either direction. The past 30 days have seen one of twenty three estimates fall for the quarter, and none moving in the opposite direction.
The past 7 days have seen one of twenty five estimates rise for the full year 2012 move north, while none moving in the opposite direction. The past 30 days have seen one of twenty five estimates rise for the year, and one estimate moved in the opposite direction in the same period.
Magnitude
The magnitude of revisions, for the forthcoming quarter, has hit a plateau over the last week and month. The estimate for 2012 has also not moved over the prior week and month.
With respect to earnings surprises, Stryker has posted one positive surprise in the preceding four quarters while it met the Zacks Consensus Estimate on the other three occasions. The company has produced an average positive earnings surprise of 2.25% over the last four quarters, implying that it has surpassed the Zacks Consensus Estimate by that measure. Third quarter earnings are also expected to meet expectations.
Our View
With a market-cap of $19.9 billion, Stryker is one of the world’s largest medical device companies operating in the global orthopedic market. Despite a soft orthopedic market and Medsurg end-market pressure, the company’s well-diversified product portfolio along with solid business fundamentals is expected to drive future growth.
Further, expansion into fast-growing international markets via strategic acquisitions and new product launches represent attractive growth opportunities. Moreover, the company remains committed to delivering incremental returns to investors leveraging its solid balance sheet, healthy free cash flow and earnings power.
However, Stryker faces several challenges, which include a still soft U.S. and European economy, the upcoming Med-tech tax, tough hospital capital budgets, weak foreign exchange and pressure from international markets.
Weakness in the reconstructive business as well as in knees and spine sales might negatively affect Stryker. Additionally, Stryker operates in the highly competitive orthopedic industry and faces strong competition from players like Zimmer Holdings Inc. (ZMH).
We expect the company to provide some light on the pricing/volume as well as capital spending trend in its third quarter commentary. Our Neutral recommendation on Stryker carries a short-term Zacks #3 Rank (Hold).
STRYKER CORP (SYK): Free Stock Analysis Report
ZIMMER HOLDINGS (ZMH): Free Stock Analysis Report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment