CEO message

We surpassed $13 billion in sales for the first time, recorded our 39th consecutive year of sales growth, posted strong adjusted earnings, completed numerous acquisitions and garnered accolades as a great place to work.

Culture and leadership
Our mission—Together with our customers, we are driven to make healthcare better—is a unifying force in the company, as are our values: Integrity, Accountability, People and Performance. Our people are driven, team-oriented and humble. We continue to be seen as a great place to work and are honored to have received many international and diversity and inclusion recognitions.

Our leadership team has changed following the retirement of Lonny Carpenter and David Floyd, who both made significant contributions to our success. Tim Scannell was appointed President and Chief Operating Officer, and I look forward to his leadership in driving performance across our businesses and regions. We named two new commercial Group Presidents—Andy Pierce (MedSurg) and Spencer Stiles (Neurotechnology, Instruments and Spine)—and, like Tim, both are longtime Stryker employees who have demonstrated excellent performance. Viju Menon also joined the company as Group President of Global Quality and Operations after a successful career in the technology industry. Howard Cox retired from our Board and was named Director Emeritus, while two new directors were added: Sheri McCoy and Rajeev Suri.

Financial performance
Our organic sales growth of 7.9 percent (which excludes the impact of acquisitions, foreign currency exchange and the adoption of Accounting Standards update ASC 606) was once again at the high end of the medical technology industry and marked our sixth consecutive year of accelerating organic growth. Our sales growth was well balanced across geographies, with strong performances in the United States, South Pacific, Japan, Europe, Latin America and emerging markets. In fact, our organic sales growth outside the United States was higher than our United States growth. Reported sales growth was 9.3 percent, including 1.9 percent growth from acquisitions and increased unit volume partially offset by a 1.4 percent impact from lower prices.

We also continued to generate healthy operational cash flow that contributed to a year-end cash and marketable securities position of $3.7 billion, enabling us to increase our dividend rate by 10.6 percent for the January 2019 payment. Our reported net earnings grew 248.3 percent, aided by the favorability of onetime tax events, and our adjusted net earnings grew by 12.7 percent.

Innovation
In 2018, our strong innovation pipeline helped power our growth, as we spent 6.3 percent of sales on research and development and launched many exciting products, such as the Neuroform Atlas Stent System in Neurovascular and the Trident II Acetabular System in Joint Replacement.

We continued to add innovations to our product and service portfolios through acquisitions, including the high-growth spinal implant company K2M. Our Instruments business added Entellus, which expands our Ear, Nose and Throat (ENT) offering, along with Invuity, which offers lighted retractors and advanced energy products. We also acquired HyperBranch, a dural sealant product that strengthens our Craniomaxillofacial (CMF) portfolio, and Hygia, to deepen our Sustainability Solutions business.

Cost transformation
Our multi-year effort to systematically reduce costs continues to progress. We were pleased to deliver 40 basis points of adjusted operating margin expansion in 2018 (excluding the impact of ASC 606), despite significant dilution from acquisitions. And we continue to make progress establishing shared services in Human Resources and Finance and implementing a single ERP system to support our commercial businesses and optimize our manufacturing and supply chain.

Looking ahead, we expect Stryker to continue 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.

I would like to thank our management teams, our Board of Directors, and our 36,000 employees worldwide who live our mission and values every day.

Kevin A. Lobo
Chairman and Chief Executive Officer