Stryker Earnings Call Nuggets: Impacts on Gross Margins and Reconstructive Business

Stryker Corporation (NYSE:SYK) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Impacts on Gross Margins

Robert Hopkins – Bank of America Merrill Lynch: So, Bill, just to start off with a financial question. My first question is, can you just highlight how FX impacted the gross margin this quarter and then give us a little bit more detail on the heeding program and how that might impact the P&L going forward?

William R. Jellison – VP and CFO: Sure. As far as how it effects the rate, it’s probably about 10 points to 20 points negative impact in this period and obviously that’s only one area that the rates actually has an impact on the overall performance. In general, as I talked about from an FX perspective, we’re exposed, obviously, on both the transactional and the translational side of the equation. So we generate a significant amount of money and profits both in Japan and Australia and a number of other countries, but we also have transactional-related exposure where we’re selling product into a number of these countries that don’t have natural offsets. Currently the Company only hedges those activities once the transaction already occurs. And on the layered hedging program that we’re at least looking at and implementing an ongoing basis, we’d be in essence and looking out forward as far as 12 or 18 months and actually putting in different layers of purchases at different points in time throughout that 12 or 18 month period of time, so that we’re buying the currencies that we need to have in those periods consistently through that period. What that does is it just mitigates or buffer some of the highs and lows associated with those exchange rate movements in any one period. So hopefully that helps kind of explain that and I’d be glad to get into more if you’ve got further follow-up questions.

Robert Hopkins – Bank of America Merrill Lynch: No, just for my other follow-up I wanted to ask Kevin a question, but thank you for that. Kevin, I just wanted to get your quick update on the competitive knee landscape. Obviously, as everyone has been talking about for a while now, there is a couple of new knees in the marketplace and one of the other competitors that have reported so far mentioned that there was trialing going on. Your numbers seem pretty solid here. So just – has your opinion changed now that we’re in another quarter, end of the competitive launches on the potential impact from those competitive launches, just an update would be great?

Kevin A. Lobo – President and CEO: Yes. Sure, Bob. Thanks. What I would say is basically consistent with what I said last quarter that it’s going to take a while before you really see if there will be an impact. I would say not before the end of the third quarter will we have a good sense. We feel pretty good about our knee performance. It’s in line with the market despite the fact that we have our ShapeMatch Cutting Guides off the market. So, we feel we’re doing well. We hear noise little bit here and there about trialing, but it’s very minor at this stage. And like I say, we are not going to have a good understanding probably till the end of the third quarter.

Reconstructive Business

Richard Newitter – Leerink Swann: Just kind of a housekeeping. I think you had given the impact of selling days on the overall Recon business. Can you parse that out by hips and knees?

Katherine A. Owen – VP, Strategy and IR: There isn’t – Rich, it’s Katherine. There really isn’t any real variability between hips and knees. So the math that we quoted on the call would hold. It is 1.5% overall. If there is any variability, it would be more related to our capital businesses that tend to be less impacted, but for consistency sake, we apply the same math each quarter and don’t try and adjust because the swings aren’t that meaningful. So, I wouldn’t expect any variability.

Richard Newitter – Leerink Swann: And on the knee side, can you maybe give us a sense of where you are with getting ShapeMatch back on the market? When might we expect that? And also, your direct to consumer initiative in knees for the GetAroundKnee, can you described what updates you might have on the impact that’s having on the business and what your plans are going forward with that?

Katherine A. Owen – VP, Strategy and IR: Yeah, Matt (16th), no problem. We filed the Otis 510K during the second quarter and it’s difficult, as you know, to predict when 510K clearance may materialize. We’re hopeful sometime this year, but obviously, that’s going to depend on a number of variables. We have been continuing with the DTC campaign. Although the mix of media varies just depending on some of the analysis we’ve done, which is very consistent with what we said on prior updates. That’s not a departure of any type and we continue to believe that the Triathlon Knee is the only single radius knee on the market, has some unique benefits as well as some extensive clinical history that we believe will help us remain very competitive and we’re pleased with the growth that we saw recognizing there is always some impact, not massive, but some impact given that ShapeMatch is not available in the market right now.

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