Stryker reported its third-quarter earnings on Thursday, and while the results met analyst expectations when it comes to revenue, even adjusting for expenses and charges, the company could not meet their earnings-per-share estimates.
In the quarter ended Sept. 12, the orthopedics company earned profits of $103 million, or 27 cents per diluted share, down from $353 million or 92 cents per diluted share in the same period in 2012. Revenue increased 4.8% to $2.15 billion in the third quarter.
The huge drop in profits was primarily driven by $245 million expenses related to the recalls of the defective Rejuvenate and ABG II modular-neck hip stems as well as that of the Neptune Waste Management System.
But even excluding those expenses and other charges, the adjusted earnings-per-share of 98 cents fell short of $1 that analysts were expecting.
Still, the conference call centered on Stryker's unexpected acquisition of Mako Surgical for $1.65 billion. Mako Surgical is a device company that makes robots for hip and knee replacement surgeries. Analysts were curious about what drove the decision to buy Mako, why Stryker ended up agreeing to pay more that it originally intended and what kind of sales synergies would result.
Stryker's CEO, Kevin Lobo, commented that you rarely end up paying what you originally believe in any deal, but declined to talk about sales synergies because the transaction had not closed.
However, he described the technology that Mako has as a game changer in the field of reconstructive surgery.
"With our recently announced agreement to acquire Mako Surgical, we believe we are well-positioned to unlock the long term potential for robotic-assisted surgery which will further define Stryker as a leader in orthopedics," Lobo said in his prepared remarks to analysts.
He added later that Stryker is very disciplined about acquisitions and most of the deals fall within metrics related to deal return.
"However occasionally we look to invest in areas that we believe can deliver breakthrough innovation and these are by definition bigger bets with bigger potential rewards," Lobo explained. Mako clearly falls into this category."