Stryker Corporation (SYK) yesterday reported third quarter earnings per share of 69 cents, in line with the Zacks Consensus Estimate and higher than the year-ago earnings of 66 cents. Net sales were flat year over year at approximately $1.7 billion. An unfavorable foreign exchange translation (FX) negatively affected net sales in the quarter. 

Excluding FX, net sales increased 1.2% year over year. On a geographic basis, U.S. sales contributed roughly 65% of total sales and increased 0.2% year over year. International sales declined 0.3% year over year. In terms of business segments: Orthopaedic Implants sales increased 5.5% year over year to $1.0 billion. Growth was contributed by all the products, such as Hips, Knees, Trauma, Spine, and Craniomaxillofacial. 

MedSurg Equipment sales declined 7.7% year over year to $637 million. The decline can be primarily attributed to lower capital spending by hospitals due to the current economic turmoil. Gross margin increased 20 basis points (bps) year over year to 67.4% primarily due to a favorable product-mix. Research and development expenses as a percentage of sales declined 50 bps year over year to 5.1%, and were within the company’s target range of 5% to 6%. 

Selling, general and administrative expenses as a percentage of sales declined 10 bps year over year to 38.9%. Stryker incurred $67 million of restructuring charges in the reported quarter due to termination of certain third-party general agent agreements in Europe and discontinuation of sales of certain products across both its business segments. 

This has primarily resulted in lower operating and net margins in the quarter. Operating margin declined 320 bps year over year to 18.8%. Net margin declined 270 bps year over year to 13.9%. Stryker’s cash, cash equivalents and marketable securities totaled approximately $2.9 billion, considerably higher than $2.4 billion recorded in the prior quarter. The company has no outstanding debt at the end of the reported quarter. 

Cash flow from operations continued to be strong at $465.8 million, compared to $182.4 million provided in the last quarter. Stryker has provided guidance for full fiscal 2009. For 2009, earnings per share should be in the range of $2.90 to $3.00. Excluding FX, net sales are expected to increase between 1% and 2%. 

Stryker Corporation is one of the world’s largest medical device companies operating in the global orthopedic market. In the orthopedic space, Stryker faces competition from major players like Zimmer Holdings (ZMH), Conmed Corporation (CNMD), Smith & Nephew (SNN), Johnson & Johnson/DePuy (JNJ), and Wright Medical (WMGI).
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