Stryker 1Q 2015

Stryker reported operating results for the first quarter of 2015, follow the link for all the numbers. The company is a global leader in medical equipment, better known for their selling of knee and hip replacements, as well as a whole host of other devices. Everything from a surgical drill, a saw, smart meters and high tech surgical equipment (screens and the like), to innovations like eliminating surgical smoke (important) to fluid disposal. The Neptune 2 is a fluid disposal product.

The business was founded post the war, by a orthopaedic surgeon of the same name, Dr. Homer Stryker. Stryker was 47 when he founded the company, one of his earliest inventions is still used, the vibrating saw to remove casts. Those of you who have ever broken a limb will know what I am talking about. Homer Stryker specialised after practicing for eight years as a GP, returning back to where the company still has their headquarters, his home town of Kalamazoo, a city that Wiki tells me is equidistant from Detroit and Chicago. Hipsters love the place, it is an important town with regards to craft beer. The other famous thing about the town is that it is the home of Gibson guitars.

In his final years he got to see the company list on the NYSE, Stryker died in 1980, the company listed on the NASDAQ (early days back then no doubt) in 1979, May the 2nd. Sadly his son had died 3 years earlier in 1976, in an airplane crash, along with his wife and two companions, leaving three kids sadly without parents. There are three siblings, Jon, Pat and Ronda Stryker, the grandchildren of Homer, they share a board seat.

Orthopaedics is the most profitable of the three divisions, it also represents 43 percent of group sales. Hips, knees and ankles, foot, and other reconstructive equipment, including a recent purchase of MAKO, robotic arm assisted surgery. MedSurg represents 39 percent of sales, the balance is the Neurotechnology and Spine, 18 percent. MedSurg includes all the instruments (drills etc.), medical equipment (including the biggest part of the business 50 years ago, beds and stretchers), as well as all the endoscopy business. Neurotechnology and Spine includes stroke therapies and spinal implants.

Revisit some of the other numbers quickly. Gross margins are a whopping 65.6 percent. Obviously the company spends heavily on research and development, 6.4 percent of total revenue. On the conference call, guidance for the quarter was given as 1.15 to 1.20 Dollars for the current quarter and 4.95 to 5.10 Dollars for the full year, currency headwinds trimming off 0.25 to 0.30 Dollars, 5 to 6 percent. Of course that is not insubstantial, what is important to remember in owning global businesses (remembering that US sales are 68 percent of total sales), you cannot get away from currency fluctuations. What we have seen here is pretty unprecedented, the massive moves in the developed world in a very short period of time. Normally currencies move 20-25 percent over years and not months.

We maintain our buy on Stryker. This is both a consistent business, since they have been listed, they have only once reported lower revenue than the prior year, and that was in 2009. Hospitals pulled back their spend sharply. The innovation and cutting edge surgical technology is evident from the company. In a world where more and more treatments and therapies are being administered on a population that is living longer and longer, their target market has more time and deeper pockets, and there are more of them. People I mean. With a price to earnings multiple of 19.3 times forward, a yield of 1.4 percent it hardly seems like a steal. I am more than happy to pay that price for a company growing profits at ten percent per annum however, a solid business.