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Stryker Q2 sales fall sharply on pandemic-related delays for medical procedures

BY Friday, July 31, 2020 08:29am

KALAMAZOO — Stryker Corp.’s sales declined sharply in the second quarter, as restrictions in the U.S. and globally during COVID-19 pandemic caused delays and deferrals of medical procedures, leading to a rare quarterly loss.

The Kalamazoo-based Stryker (NYSE: SYK) on Thursday afternoon reported quarterly net sales of $2.76 billion, a 24.3-percent decrease from the $3.65 billion in the second quarter of 2019.

Stryker Chairman and CEO Kevin Lobo COURTESY PHOTO

Sales hit a low point in April and then improved through the end of June with “a gradual return of elective medical procedures during the quarter,” Chairman and CEO Kevin Lobo said in a conference call with brokerage analysts to discuss results.

“This has been the most unique situation that most of us have ever experienced,” Lobo said. “While we have been impacted financially as a result of the government shutdowns and deferrals of elective procedures, this time has also allowed us opportunities to reevaluate and develop new ways to work and collaborate across our diverse group of businesses. We are prepared to emerge from the pandemic as a stronger, more efficient company.”

Research and development programs “continue to proceed despite logistical challenges caused by the pandemic, and we spent at a healthy rate in the quarter,” he said.

Sales were off across all of Stryker’s markets and business lines, falling nearly 30 percent for the orthopedics division to $894 million, 17.3 percent for medical and surgical equipment to $1.32 billion, and 29.6 percent in the neurotechnology and spine business to $546 million.

Geographically, U.S. sales declined 27 percent to $1.96 billion and international revenues decreased 16.5 percent to $798 million.

Sales did improve later in the second quarter, and the company expects the third quarter “will be much better obviously because July is trending better than June,” Lobo said.

“As long as we don’t have an outbreak or have to go back to shelter-in-place, as long as this trend line continues, … we’re feeling good” about the third quarter, Lobo said.

Still, Stryker declined to offer sales and earnings guidance for the present third quarter and the rest of 2020, citing the “uncertain scope and duration of the pandemic, and uncertain timing of global recovery and economic normalization.”

“We just don’t know what’s going to happen in the future, but there isn’t any reason to think that there’s something widely different about our business,” Lobo told analysts.

Stryker recorded an $83 million net loss for the quarter, or 22 cents per diluted share. The producer of orthopedic implants and medical and surgical equipment made $480 million, or $1.26 per diluted share, in the same period a year earlier.

The second quarter included $170 million in charges from asset impairments that are in process, and product line and other exits “resulting from our decision to suspend certain investments due to pandemic-related constraints,” according to the company.

Minus the charges, Stryker had adjusted earnings of $245 million, or 64 cents per diluted share.

Sales through midyear declined 11.4 percent from the first half of 2019 to $6.36 billion, with $410 million in net income, or $2.35 per diluted share.

In response to the pandemic, Stryker during in March sought to cut discretionary spending by curtailing spending on hiring, travel, meetings and consulting, idling of certain manufacturing lines and facilities, and furloughing workers, CFO Glenn Boehnlein said.

While the pandemic cut deeply into sales, it has driven demand higher for Stryker’s “extensive portfolio” of products for patient and caregiver safety, and accident and infection prevention, said Preston Wells, Stryker’s vice president of investor relations. That includes hygiene and disinfecting products, personal protective equipment, waste management, and smoke-evacuation devices.

“Although the COVID-19 pandemic has led to a slowdown in elective procedures, it has also placed increased emphasis on the safety of health care providers and their patients,” Wells said. “We will continue to leverage our diverse portfolio to address changing trends and meet the expectations of our customers, caregivers, and patients.”

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