Stryker Corp., of Kalamazoo, Mich., saw strength in the fourth quarter, with Mako experiencing good uptake in total knee arthroplasty.

Katherine Owen, Stryker’s vice president of strategy & investor relations, said Mako demand was driven by the benefits of its robotic technology, multiple applications and the ability to do cementless knee.

For the quarter, Mako procedures jumped about 50% to 36,600, and the total for the year stood at more than 114,000. “Total knee procedures posted a roughly 59% increase in [the fourth quarter] to approximately 24,000, while full year Mako knee procedure increased roughly 66%, topping 75,000,” Owen added.

Ryan Zimmerman, analyst at BTIG, highlighted early system placements in Asia for Mako, marking an encouraging sign for the region. Owen did note, however, that the company will stop providing quarterly updates on Mako moving forward.

Wells Fargo’s Larry Biegelsen noted that the company witnessed strong traction with its 3D-printed cementless knee, which for the year accounted for more than 36% of Stryker’s U.S. knee procedures. The hip application also saw strength. “Looking ahead, we believe Mako will continue to drive implant share gains in both hips and knees for SYK. Management also noted that they expect the current trends to continue and do not anticipate much impact from competition at this time.”

Overall results

Looking broadly across the company, Stryker saw good news for the year. "We had an excellent finish to 2019, achieving 8.1% full-year organic sales growth and 13% adjusted EPS gains. This marks our seventh consecutive year of accelerating organic sales growth," said Kevin Lobo, chairman and CEO, who added that the performance was balanced across businesses and geographies.

The quarter yielded equally good news on the financial front. Cowen’s Joshua Jennings highlighted fourth-quarter revenue of $4.13 billion, a figure that exceeded the consensus by $20 million.

In terms of individual businesses, orthopedics saw net sales of $1.5 billion and $5.3 billion, increasing 6.7% and 5.2% in the quarter and full year and 7.3% and 6.7% in constant currency. Medsurg net sales were $1.8 billion and $6.6 billion, rising 6.8% and 8.8% in the quarter and full year and 7.4% and 9.9% in constant currency. Meanwhile, neurotechnology and spine witnessed net sales of $827 million and $3.1 billion, jumping 18% and 19.2% in the quarter and full year and 18.2% and 20.5% in constant currency.

The company also said that it anticipates 2020 organic net sales growth to be in the range of 6.5% to 7.5% and expected adjusted net earnings per diluted share to be in the range of $9.00 to $9.20.

Jennings said some may closely examine the company’s 6.5% to 7.5% organic growth guidance; however, “we would remind investors that [management] provided identical guidance for 2019 before ultimately delivering 8.1% growth.” He added that Stryker’s momentum should continue this year and views the top end of the guidance range as beatable.

Other analysts heralded the results, too, with Zimmerman pointing out that Mako posted its best numbers to date.

“Even if Stryker’s premium valuation is more expensive, we respect the execution and believe Stryker is worth owning on a 12- to 24-month basis,” Zimmerman added.

M&A possibility

During the call, participants were interested in possible M&A, with UBS analyst Young Li asking about the potential for expanding to other verticals. Of note, Stryker has made two big buys in the last couple of years. In November, Stryker reported that it was picking up Wright Medical Group NV, of Amsterdam, for a total enterprise value of about $5.4 billion. The deal is expected to close in the second half of 2020. During the call, Lobo noted that the buy was intended to address upper extremities, its last meaningful category leadership gap.

Previously, the company agreed to buy Leesburg, Va.-based K2m Group Holdings Inc. for $1.4 billion.

Currently, the company has a strong pipeline, Lobo noted. “Obviously, with the size of the Wright Medical deal, we're not going to be looking at targets of scale for the next year or two while we start to pay down that debt, but we will still keep the lights on in our business development engine.”

He highlighted sports medicine, spine and shoulder as areas in which the company had gaps several years ago. “[A]nd we've made huge progress in our sports medicine business, mostly organically but also with a series of tuck-in deals. With K2m, we've largely addressed our spine business, and then Wright Medical addresses upper extremities. So those are the areas that we clearly were not in the top 1, 2 or 3 in the category, and that will propel us into that category.”

Larry Keusch with Raymond James also asked about M&A, noting that the company would have an increase in its leverage upon the completion of the Wright deal. Glenn Boehnlein, Stryker’s vice president and CFO, replied that the company likely would continue with small tuck-ins. Such buys “are really the bread and butter of how we drive a lot of growth for our divisions. So, I don't see any change in that piece of the strategy,” he added.


For his part, Bob Hopkins with Bank of America asked about the potential impact of the coronavirus on procedures in China. Owen noted that it was too early to provide exact details, but the company’s exposure in emerging markets is low. And in China, it's even lower. It's low single digits. And that's one of the variables we often contemplate when we set out a range.” She concluded that the company was not providing additional commentary, given the timing.

With that said, Asia does offer great prospects for the company. “Japan now has all the applications approved on the robot,” Lobo noted. “We're still waiting for the knee application to be approved in China, hope to have that sometime this year. But those will be very, very good markets for Mako as well.”

Jennings asked about the company’s prospects in China, particularly as it awaits total knee approval there. Owen replied that the company is excited about the prospects, but it is hard to provide a quantifiable answer. “We've seen great performance in Asia and Australia and parts of Europe and Latin America and now seeing Japan come online. So, it's the totality of that geographic offering that I think will help really power our OUS Mako performance.”