In terms of business segments: Orthopaedic Implants sales were roughly flat year over year at $1,014.2 million. The company witnessed strong U.S. sales buoyed by higher shipments of reconstructive, trauma, spinal and craniomaxillofacial implant systems. However, international sales were lower due to currency headwinds. MedSurg Equipment sales declined 11% year over year to $620.1 million. This segment was hurt by the global economic slowdown with patients delaying their surgical operations. Lower shipments of surgical equipment and surgical navigation systems, endoscopic, communications and digital imaging systems etc. were witnessed across this segment.

On a geographic basis, the U.S. represented approximately 64% of net sales in the quarter and was roughly flat on a year over year basis. The company’s international operations declined 11%.
 
Gross margin was 67.2%, a decline of 170 basis points (bps) year over year, due to higher investments made by the company in its compliance initiatives and slowdown in some of its manufacturing plants as a result of the present economic turbulence. Selling, general and administrative expenses (SG&A) as a percentage of total sales declined 180 basis points year over year due to the various cost control initiatives adopted by the company in response to the slowing economy. Lowered operating expenses, as a percentage of sales, resulted in higher operating margin (↑50 bps year over year) at 23.9%. However, lower non-operating income ultimately dragged down the company’s net margin (↓10 bps year over year).

Management expects EPS for 2009 in the range of $2.90 to $3.10, compared to an adjusted EPS of $2.83 last year. Furthermore, it expects net sales for the year to decline roughly 2% to 3% on a reported basis and to increase 1% to 3% on a constant-currency basis.

For the next year, management expects net sales to decline roughly 1.5% to 2.5% on a reported basis. 

Stryker faces competition from major players like Zimmer Holdings (ZMH), Conmed (CNMD), Smith & Nephew (SNN), Johnson & Johnson (JNJ)/DePuy, and Wright Medical (WMGI). The company has faced several headwinds of late. They include the current economic uncertainty, delayed capital spending by hospitals, an increase in the uninsured population stemming from higher unemployment, and weaker foreign exchange and pressures from international markets.

Based on the company’s performance in the quarter, we continue to rate Stryker a ‘Hold’.