Stryker 2026 Q2 Earnings Call

You may proceed, sir. Welcome to Stryker's second quarter earnings call.

Joining me today are Preston Wells, Stryker CFO, and Nick Mead, Vice President of Investor Relations. For today's call, I will provide opening comments, followed by Nick with market trends and some product updates. Preston will then provide additional details regarding our results and guidance before opening the call to Q&A. Our second quarter results demonstrated the strength of our broad product portfolio and resiliency of our teams. Our recovery from the cybersecurity incident continued as we ramped overall production to meet ongoing demand and support patient care. We delivered strong organic sales growth of 9%, including high single-digit growth from both our MedSurg and Neurotechnology and Orthopaedics businesses. Geographically, our U.S. organic sales growth of 9% included double-digit organic growth from our medical, trauma extremities, and endoscopy businesses, and high single-digit organic growth in Ortho Tech and instruments.

This growth was offset by supply disruptions in our Peripheral Vascular business. While our sales force hiring and integration has made great progress, the supply disruption resulted in a meaningful backorder situation with lost sales in the quarter. We have addressed the issue, and back orders should reach a manageable level by the end of Q3. We remain confident in the long-term outlook for Peripheral Vascular, including the AVS acquisition, which closed in the quarter. Internationally, our 8.9% organic sales growth was driven by strong performances in Australia, New Zealand, Germany, Canada, South Korea, Japan, India, and Brazil. We continue to see long-term growth opportunities in our international markets through strong commercial execution and the introduction of products that have demonstrated success in the U.S. in recent years.

From an earnings perspective, we delivered adjusted EPS growth of 17.9%, reflecting improved gross margins, as well as our ongoing commitment to rigorous operational execution. We exited Q2 with regained momentum and expect a strong second half of the year, driven by high demand for our capital products, continued production ramp, and strong commercial execution. We are narrowing our full year guidance, and our businesses are well-positioned to deliver another strong year of financial performance. Finally, our financial position and cash flow generation remain strong, providing firepower to deploy capital. Preston will elaborate on that in his section. I would like to acknowledge our teams for their efforts in putting us on track to deliver another strong year of organic sales and adjusted earnings growth. With that, I will now turn the call over to Nick.

Thank you, Kevin. My comments today will focus on the capital and procedural environment, as well as several key product highlights. Capital delivery was a key driver of the growth in the quarter as we recovered from the cybersecurity incident and demand remained strong. We exited the quarter with an elevated backlog and expect continued strength in the hospital capital environment through the remainder of the year. The U.S. procedural environment remained stable. While there has been some commentary on softness in surgical volumes, particularly in discretionary procedures, we have not observed meaningful changes in volume trends. Our portfolio is highly diversified, with the vast majority of our businesses supporting high acuity, medically necessary and emergent care where clinical demand remains strong.

Importantly, the fundamental drivers of healthcare demand remain firmly in place, including an aging population, the ongoing need for hospital workforce productivity, and the increasing occurrence of chronic disease. Together, these trends continue to support durable demand for our differentiated product portfolio. Now I'd like to turn to some product highlights. We delivered our best ever Q2 for Mako installations, both in the U.S. and internationally, and utilization rates across our installed base continued to trend upward. This year we celebrate 20 years of Mako and its evolution into a multi-specialty robotics platform with applications spanning hip, knee, spine, and shoulder procedures. Furthermore, we recently announced the full commercial launch of Mako RPS in the U.S., expanding our robotics portfolio and offering surgeons additional options across a range of care settings.

With more than 2.5 million procedures performed globally and systems installed across 47 countries, Mako remains well-positioned to drive continued growth through innovation, clinical evidence, and expanding adoption worldwide. We are rapidly moving to full commercial launches of Triathlon Gold and our Triathlon Medial Stabilized Insert, both of which are generating strong interest and positive customer feedback. During Q2, we also gained approval on the Prophecy patient-specific planning and guides for our new Incompass total ankle replacement system. We've just moved to full commercial launch. Additionally, we recently received approval and have initiated a limited launch for our Pangea trauma plating system in Europe, to be followed by a full commercial launch during the fourth quarter. Within Instruments, we look forward to the upcoming launch of the Sonopet iQ ultrasonic aspirator.

These products are part of the steady cadence of next generation and innovative products across our broad base of businesses that fuel our growth. Let me now turn the call over to Preston.

Thanks, Nick. Detailed financial information has been provided in today's press release. Today, I will focus my comments on our second quarter financial results and the related drivers. Organic sales growth was 9% for the quarter against a double-digit comparable in the second quarter of 2025. Pricing was flat, and foreign currency had a 0.4% favorable impact on sales. This quarter had the same number of selling days compared to the prior year. Adjusted earnings per share of $3.69 was up $0.56, or 17.9% from the same quarter last year, driven by our strong sales growth, a continued focus on operational excellence, and a net benefit in the quarter from tariff related costs. Foreign currency translation had a favorable impact of $0.01. I will provide some highlights around our quarterly segment performance.

For the quarter, MedSurg and Neurotechnology delivered organic sales growth of 9.2%, which included 8.9% of U.S. organic growth and 10.5% of international organic growth. Instruments U.S. organic sales rose 8.4% against a prior year comparable of 16.3%. Growth this quarter included a robust double-digit performance in our interventional spine pain portfolio, as well as a strong performance from our surgical technologies business, which includes Neptune Waste Management, Smoke Evacuation, and SurgiCount products. Endoscopy U.S. organic sales grew 10.2%, reflecting strong demand across multiple areas of the business. Operating room infrastructure and renovations were a key growth driver, including a robust performance from the recently launched Oculan Light. We also delivered strong growth in our urology and connected OR products within the core endoscopy portfolio, as well as in sports medicine, where double-digit growth was driven by its expanded range of shoulder implant products.

Medical U.S. organic sales increased 13.1% and included very strong double-digit performances from our Sage and emergency care businesses. From a product perspective, growth was led by preoperative skin prep products, powered cots, and LIFEPAK 35, which continues to generate strong customer interest and capture additional market share. Capital demand also remains elevated, as evidenced by an increased backlog and strong orders as we exited the quarter, including ProCuity beds and our Smart Care business, which includes Vocera and care.ai. Vascular U.S. organic sales declined 6.7% from a year earlier due to the operational disruption in Peripheral Vascular that Kevin discussed in his remarks, partially offset by solid growth in our hemorrhagic portfolio, driven by the Surpass Evolve flow diverting stents. Internationally, MedSurg and Neurotechnology organic sales growth of 10.5% included broad strength across endoscopy, medical, and instruments.

Geographically, growth was led by robust performance in Australia and New Zealand, Germany, Canada, Brazil, and India. Orthopaedics delivered organic sales growth of 8.6% in the quarter, which included 9.1% of U.S. organic growth and 7.5% of international organic growth. U.S. knees organic sales grew 6.2%, reflecting the continued adoption of Mako for robotic assisted knee procedures and momentum from our cementless knee products. U.S. hips organic sales rose 4.9%, reflecting the ongoing success of our Insignia hip stem and the Mako robotic hip platform, with our latest application having the expanded ability to address more difficult primary hip cases and hip revisions. U.S. trauma and extremities organic sales increased 12.5%, with strong double-digit sales growth in our trauma and upper extremities businesses.

Pangea continues to be a key driver of our growth in our trauma business, and our multi-year growth momentum in shoulders was driven by the continued strong performance of our differentiated portfolio and the recent full commercial launch of Mako Shoulder on Mako 4. U.S. Ortho Tech organic sales grew 9.2%, driven by robust Mako installations. Internationally, Orthopaedics organic sales growth of 7.5% included strength in knees, Ortho Tech, and trauma and extremities, and was led regionally by Canada, South Korea, Australia and New Zealand, Brazil, and India. Similar to the first quarter, the conflict in Iran had a modest impact on overall company growth. Now I will focus on certain operating and non-operating items in the quarter.