CEO message
Kevin A. Lobo
Chairman and Chief
Executive Officer
Dear shareholders,
We delivered another strong year of financial results in 2017 and continue to strengthen our position as a leader in Orthopaedics, Medical and Surgical (MedSurg), and Neurotechnology and Spine.
We achieved significant milestones, surpassing $12 billion in sales for the first time, recording our 38th consecutive year of sales growth and again earning accolades as a great place to work.
Culture and leadership
Our culture defines us and sets us apart. We are guided by our unifying mission: Together with our customers, we are driven to make healthcare better; and by our values: Integrity, Accountability, People and Performance. We attract people who align with these qualities and who are humble and hard-working. In addition to being honored again by FORTUNE’s 100 Best Companies to Work For (U.S.), we were recognized as a World’s Great Place to Work and a Great Place to Work for Women. Our customer focus is evident in our operating model of decentralized businesses, supported by strong corporate functions.
Our leadership team had one addition in 2017, Graham McLean, President of Asia Pacific, and our longest-standing director, Howard Cox, announced his retirement from our Board after 44 years of service. Howard has made immense contributions to Stryker, dating back to before we were listed as a public company in 1979. In recognition of his contributions, we named him Director Emeritus. We also added Mary Brainerd, a director of Bremer Bank and former CEO of Health Partners, to our Board.
Financial performance
Our organic sales growth of 7.1 percent (which excludes the impact of acquisitions and foreign currency exchange) was once again at the high end of the medical technology industry. Our reported sales growth was 9.9 percent, including 2.7 percent growth from acquisitions as the impact of foreign currency exchange was nominal. While our reported net earnings declined 38.1 percent due to significant onetime charges related to U.S. tax reform legislation, we delivered strong adjusted net earnings growth of 12.3 percent.
We continued to generate healthy operational cash flow that contributed to a year-end cash and marketable securities position of $2.8 billion, enabling us to increase our dividend rate by 11 percent for the January 2018 payment.
Successes and challenges
In 2017, our growth was well balanced across businesses and geographies. We generated double-digit organic growth in Endoscopy, Neurotechnology, and Trauma & Extremities in the United States. We also had strong performances in Joint Replacement, Instruments and categories within Medical (EMS and Acute Care). Europe, Canada and Australia continued to perform well, and we had encouraging performances in emerging markets.
We maintained our commitment to R&D, spending 6.3 percent of sales, and successfully introduced a number of products, including the full launch of the robotic-arm assisted Mako Total Knee application and System 8 power tools. We also continued to be acquisitive, including NOVADAQ, which provides advanced imaging for our Endoscopy business, and Entellus, a deal that closed in the first quarter of 2018 and will strengthen our Instruments business through expansion of our Ear, Nose and Throat (ENT) portfolio.
We also weathered some storms this past year, both literally and figuratively. The hurricane season in the United States and Caribbean islands had a meaningful impact on our manufacturing facility in Puerto Rico and affected business in Florida and Houston. We also managed through significant regulatory challenges with Sage Products, a part of our Medical business, that required a product recall and lengthy product holds on the majority of its portfolio.
I would like to acknowledge the way our employees rallied in the face of these challenges to support each other and minimize the impact on our customers. We recovered well from both issues by the end of the year and expect only modest headwinds to linger into 2018.
“We continued to generate healthy operational cash flow.”
Mission
Together with our customers,
we are driven
to make healthcare better.
Values
Integrity
We do what's right
Accountability
We do what we say
People
We grow talent
Performance
We deliver
“Our strategy, people and culture will enable us to maintain our strong performance in the years ahead.”
Cost transformation
Our efforts to systematically reduce costs, which is a multi-year process, continue to progress. We are focused on product-line rationalization; indirect procurement optimization; global enterprise resource planning (ERP) system implementation; shared services transformation; and manufacturing-site consolidation.
Looking ahead
Stryker 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, people and culture will enable us to maintain our strong performance in the years ahead, which is evident in our financial guidance for 2018.
I would like to thank our management teams, our Board of Directors, and our 33,000 employees worldwide who make healthcare better each and every day.
Kevin A. Lobo
Chairman and Chief Executive Officer
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