Stryker Earnings Call Nuggets: Joint Market and Expenditure Outlook

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

Joint Market

Matthew O’Brien – William Blair: We could just start on the – within the large joint market. Generally speaking just what are you seeing on the volume side of things, it seems like the quarter was solid but somewhat uninspiring with respective volumes. Are you seeing anything different than we have seen in the past several quarters?

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Katherine A. Owen – VP, Strategy and IR: I’ll just go back to some of the formal comments on the call. In the quarter nothing significantly out of expectations getting back to that normalized what we think is going to be low to mid-single-digit market growth. As we mentioned we think there was some modest seasonality as we have seen in prior year probably a little bit more so as it’s been accelerating each year and which made the fourth quarter little bit stronger. And that’s very consistent with what we have commented previously and that’s probably a little bit more so in the case of knee it is a more deferrable procedure versus hips and that’s far so why we think we saw a little bit stronger hip growth versus knee growth. I’d call that just kind of a normal Q4 to Q1 pattern versus any real deviation from what we believe to be normalized growth.

Matthew O’Brien – William Blair: And then with respect to AAOS and I know it’s still fairly early, but there is a lot of noise made by couple of your competitors on the knee side. What have you heard so far back from the field as far as what they are thinking within their customer base in terms of some potential trialing of these new knee products versus just sticking with Triathlon…

Katherine A. Owen – VP, Strategy and IR: I think it was just similar to (AOS comments). It’s not going to be that different. We are still early on, and as you know, when companies roll out new hip and knee systems, there’s a period of time of trialing, getting their own sales force comfortable with it, and then typically focusing on their existing customer base. So I’m sure there’ll be some impact out there. We feel really well positioned with Triathlon. That’s the only single radius knee on the market. That said we’re obviously going to be cognizant of what the competitors are doing, but it’s probably Q3 to Q4 before we would really start to see any impact to the degree it occurs.

Matthew O’Brien – William Blair: Okay. If I can just sneak in one more quick on Neptune.

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Expenditure Outlook

Matthew Dodds – Citi Investment Research: A couple quick questions. The R&D I know you said it was up 15% on new plants. It seemed higher than I thought for the start of the year. Can you say if this run rate – is this more of the new run rate for the year and is there any particular area where the spend is higher or whether it’s (say neutral)?

Katherine A. Owen – VP, Strategy and IR: I wouldn’t say there’s any significant change. We talked about R&D runnings between 5% to 6% of sales. That continues to be our expectations. It may be higher or lower in any given quarter and the year-over-year growth rates obviously can fluctuate, just the timing of investments and trials and the like. But there’s variability among all the different business, but that said, all of them are seeing increases in R&D spending. So for modeling I would continue to assume it’s going to be somewhere between 5% and 6% of sales…

Kevin A. Lobo – President and CEO: This is Kevin. What I’ll just add is, I’ve had a chance to visit a number of the divisions and I can tell you we have exciting pipelines across multiple divisions. I was at a neurovascular, endoscopy and just recently at instruments and we have really, really exciting pipelines across the portfolio. It’s fair to say that as neuro becomes a bigger part of Stryker that clearly carries a little bit more R&D, but as Katherine said, between 5% to 6% is what you should be looking for.

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Matthew Dodds – Citi Investment Research: Then one quick follow-up for ShapeMatch how bigger the market do you think today in the U.S. is custom cutting guys, I thought it was still pretty small. So the impact wouldn’t be that bad why you’re off the market?

Katherine A. Owen – VP, Strategy and IR: Yeah, I think that’s a fair comment, Matt. We’ve been off the market since the mid of Q4 and obviously we had pretty solid fourth quarter in knees. Cleary we are not selling ShapeMatch so there is some revenue impact but it really is immaterial certainly to total Stryker, but also to our knee business. We estimate it’s hard to get really good data but it’s probably about 10% of knee procedure to use some type of custom cutting guys.

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