Dear
shareholders,
We had another strong year in 2016 and continue to position ourselves for global leadership in Orthopaedics, Medical and Surgical (MedSurg) and Neurotechnology and Spine.
Kevin A. Lobo Chairman and Chief Executive Officer
For the first time in our history, we surpassed both $10 billion and $11 billion in sales. Our team delivered strong earnings performance as well, through our core strategies of business unit specialization, acquisitions, globalization and cost transformation.
Culture and leadershipOur culture is the bedrock of our success. We are guided by a unifying mission: Together with our customers, we are driven to make healthcare better; and our values: Integrity, Accountability, People and Performance. We attract people who align with these qualities and who are humble, team-based and performance-oriented. We continue to earn accolades as a preferred employer around the world. We were once again honored by Great Place to Work and FORTUNE Magazine as one of the 100 Best Companies to Work For and also ranked on the Best Workplaces for Manufacturing and Production, Parents and Giving Back lists. Our employee resource groups play an increasingly important role in providing meaningful input toward improving our policies, such as a new parental leave policy in the United States.
We have an outstanding leadership team guiding our company, pictured with me on the Leadership page, which includes two additions in early 2016 — Katy Fink, Chief Human Resource Officer and Glenn Boehnlein, Chief Financial Officer. After more than 20 years of service, Bill Parfet resigned from our Board of Directors, and we thank him for his contributions.
Financial performanceOur reported sales growth of nearly 14 percent includes organic growth of over six percent (which excludes the impact of acquisitions and foreign currency exchange), once again at the high end of the medical technology industry, reflecting our ability to consistently outperform the market. Our reported net earnings per diluted share grew 15 percent, and we delivered strong adjusted net earnings growth of over 12 percent.
In addition, our continued healthy operational cash flow of $1.8 billion contributed to our year-end cash position of $3.4 billion, which enabled us to increase our dividend rate by 11.8 percent for the January 2017 payment.
Business unit specializationThanks to our successful decentralized model — with dedicated sales, marketing, business development and research & development functions within each division — we continue to work closely with our customers to drive innovation that meets their needs. We also increased our investment in research & development, which totaled $715 million in 2016. A few examples of recent product launches are the robotic-arm assisted Mako Total Knee application, which fully launched in March 2017; the Neptune 3 Waste Management System; the 1588 AIM Platform; and the new Tritanium interbody device for our Spine business.
Our Mission
Together with our customers,
we are driven
to make healthcare better.
Our Values
We do what's right
We do what we say
We grow talent
We deliver
“For the first time
in our history,
we surpassed both
$10 billion and
$11 billion in sales.”
We had an active year in acquisitions, investing more than $4 billion. The Medical division acquired two large companies, Sage Products, LLC and Physio-Control International, Inc., which add significant disposable products to our capital offerings while advancing our efforts on safety (i.e., preventing hospital-acquired conditions) and life-saving products (e.g., defibrillators). The other acquisitions were spread across our three operating segments and will enhance our product portfolio. We expect to continue to pursue acquisitions, which remains our first priority for capital allocation.
GlobalizationWe extended our Transatlantic Operating Model beyond Europe to include Canada. This marks the second year of strong sales and earnings growth in Europe, and we had an encouraging start in Canada. Japan continues to be a good business for us, and Australia and New Zealand once again had strong performances.
Emerging markets remained challenging in 2016, especially in the first half of the year; however, we are encouraged that all key markets, including China, achieved positive growth in the fourth quarter. We remain committed to growing in emerging markets and launched MedSurg products (power tools and beds) in the value segment to complement our Trauson-branded trauma and spine products.
Cost transformationIn our efforts to systematically reduce costs, we made substantial progress by continuing to focus on product line rationalization, indirect procurement, global enterprise resource planning (ERP) system implementation, shared services and manufacturing site consolidation. Because of these programs, we not only delivered 60 basis points of operating margin leverage, but are committed to deliver 30–50 basis points annually over the next five years.
Looking aheadStryker continues to have a bright future. We remain confident in our ability to grow sales at the high end of the medical technology industry, while driving leveraged earnings. Our strategy, change initiatives, people and culture have consistently contributed to our success and should continue to serve us well. Our 2017 sales growth and earnings guidance again reflect our commitment to delivering strong financial performance.
I would like to thank our management teams, our Board of Directors and our more than 33,000 employees worldwide, who continue to be fully engaged and deliver excellent results while staying true to our mission and values. Also, thank you for your investment in Stryker; we will continue to do everything we can to make it grow.
Chairman and Chief Executive Officer
