Stryker Q1 Earnings Call Highlights

Key Points

• Stryker said a late‑quarter cyber incident temporarily halted production for almost three weeks, delaying shipments and revenue recognition and materially distorting Q1 results, but operations were restored in early April and management maintained full‑year 2026 guidance expecting most lost sales to be recovered later in the year.
• Q1 organic sales rose 2.4% (1.9% U.S., 3.9% international) but adjusted EPS fell to $2.60 (down 8.5%) and margins were pressured—adjusted gross margin down 190 bps and operating margin down 180 bps—while the company reiterated full‑year targets of ~8–9.5% organic sales growth and $14.90–$15.10 adjusted EPS.
• Management created a new Ortho Tech segment, reported strong Mako adoption and Pangea traction, and said Stryker has M&A "firepower" (about 2.1x gross debt/EBITDA) with a pending acquisition of Amplitude Vascular Systems to expand its cardiovascular portfolio.

Stryker NYSE: SYK executives said the company’s first quarter results were meaningfully disrupted by a late-quarter cyber incident that temporarily halted production and delayed shipments and revenue recognition, but management maintained its full-year outlook as operations returned to normal in early April.

Cyber incident drove unusual first-quarter distortions

Chair and CEO Kevin Lobo said the cyber incident “had a big impact on our results” and affected each business differently based on go-to-market models and how revenue is recorded. The incident occurred late in the quarter and created a “global disruption” to operations, though Lobo said internal teams and third-party experts “reacted quickly to remove the unauthorized party” and work to restore systems.

“Patient care is our top priority,” Lobo said, adding that as of the week of April 1, Stryker was “fully operational across our global manufacturing network.” CFO Preston Wells said the timing of the incident created an “outsized impact on sales due to delays in revenue recognition in addition to the delayed shipments.”

Wells declined to provide the usual business-level sales detail, saying individual business results were not indicative of underlying market performance due to differing impacts across the portfolio. He described variability based on capital equipment versus consumables mix, inventory and consignment structures, supply chain complexity, and the deferrable nature of certain procedures.

Q1 results: Organic growth positive, margins pressured

Stryker reported first-quarter organic sales growth of 2.4% worldwide, including 1.9% in the U.S. and 3.9% internationally, according to Lobo. Wells said pricing had a 0.3% favorable impact and foreign currency added 1.6%.

Adjusted earnings per share were $2.60, down $0.24, or 8.5%, from 2025. Wells attributed the decline to “limited sales growth and lost manufacturing absorption related to the cyber incident,” along with tariffs and increased interest expense, partially offset by operational efficiency efforts and a slightly favorable impact from currency translation.

Adjusted gross margin was 63.6%, down 190 basis points year over year, reflecting lost manufacturing absorption from production shutdowns and tariffs. Adjusted operating margin was 21.1% of sales, down 180 basis points, driven by gross margin pressure and deleveraging on lower sales growth, partially offset by cost discipline.

Adjusted other income and expense was $97 million, $24 million higher than 2025 due to higher interest expense tied to debt issued in 2025 to help fund the acquisition of Inari, as well as lower interest income from lower average cash balances and lower rates. Wells said Stryker still expects full-year 2026 adjusted other income and expense of about $420 million and a full-year adjusted effective tax rate of 15% to 16% (Q1 was 14.5%).

Cash from operations year to date was $581 million, which Wells said reflected normal first-quarter seasonality and the cyber incident’s impact on earnings and working capital, including inventories and receivables timing.

Demand backdrop described as healthy; capital environment “stable”

Vice President of Finance and Investor Relations Jason Beach said underlying demand remained healthy despite operational disruption. He pointed to “solid” procedural volumes supported by demographics and continued adoption of robotic-assisted surgery, and said the hospital capital spending environment remained steady with an “elevated” capital order book entering the rest of the year.

In the Q&A, Lobo said Stryker did not see a pause in orders, but did see a pause in shipments because the company “couldn’t make product for almost three weeks.” He described the order book as “very healthy” and said, “Hospitals still have healthy balance sheets… our hospital environment is still very stable.”

Wells also noted the conflict in Iran had a “modest effect” on international growth in the quarter, but said the overall impact was limited and the company continued to see long-term opportunity in the Middle East, including Saudi Arabia.

Full-year guidance maintained; recovery expected through 2026

Despite first-quarter disruption, Wells said the company is maintaining its 2026 guidance and expects most lost first-quarter sales to be realized over the remainder of the year. Stryker continues to expect:

• Organic net sales growth of 8% to 9.5%
• Adjusted net earnings per share of $14.90 to $15.10

Wells said the cadence should reflect catch-up of revenue recognition in the second quarter, while rescheduled procedures and fulfillment of orders impacted by production shutdowns are expected to push into the second half of the year. In limited emergent or non-elective areas, he said any permanently lost sales are expected to be offset through commercial execution.

On margins, Wells told analysts that from a full-year perspective “nothing’s changed,” though quarter-to-quarter cadence could shift. He also said the company expects some headwinds in the first and second quarters due to tariffs versus the prior-year period. Addressing broader inflation concerns, Wells said procurement efforts and existing contracts are being used to mitigate rising input costs and that expectations are already reflected in guidance.

Wells also reaffirmed a free cash flow conversion outlook in the 70% to 80% range, saying the company is contemplating investments tied to the cyber recovery within its existing guidance framework.

Portfolio actions: Ortho Tech reporting, Mako momentum, and cardiovascular expansion

Lobo highlighted organizational and portfolio updates, including the creation of a new Ortho Tech business that combines Mako and Enabling Technologies with the orthopedic instruments portfolio to “simplify the customer experience” and accelerate innovation. Beach said segment disclosures were updated beginning in the first quarter, with Ortho Tech now encompassing orthopedic instruments, Mako and Enabling Technologies, and certain other products such as bone cement. Neurocranial businesses are now reported with the remaining Surgical Technologies portfolio under Instruments.

Beach said Stryker delivered its “best ever Q1 for Mako installations” in both the U.S. and internationally, with “high and increasing utilization rates.” He said the company continues to receive positive surgeon feedback on Mako Shoulder, which is expected to be fully launched on Mako 4 midyear.

During the Q&A, Lobo discussed early interest in the Mako RPS handheld system, saying it has received “tremendous feedback,” with early traction appearing in ambulatory surgery centers. He also said it is not slowing Mako momentum and is aimed at customers for whom a full Mako system was “too big of a leap.”

On product pipeline, Lobo said Pangea has driven “explosive growth” in U.S. trauma, has begun to ramp in Japan, and recently received approval in Europe. He added that the launch will take multiple quarters due to complex kit production, but said the tailwind should extend into 2027 and 2028. He also highlighted LIFEPAK 35 defibrillators, noting approvals in Europe and the U.S., and said the long replacement cycle means the product will remain a key offering for years.

On M&A, Lobo said Stryker recently announced an agreement to acquire Amplitude Vascular Systems (AVS), expected to close in the second quarter, to expand treatment options in peripheral vascular and broaden its cardiovascular presence. He said Stryker ended the quarter at about 2.1 gross debt to EBITDA and has “firepower” for additional acquisitions, adding the pipeline is strong and investors should expect the company “to be active in M&A.”

Lobo also provided an update on Inari, saying management changes and commercial efforts are in place and that sales force attrition challenges from the first year are “mostly behind us now.” He said AVS would be a “turbo booster” given the same physician call point, and reiterated Stryker’s intent to keep investing in innovation through internal development and acquisitions.

Management also addressed technology initiatives in hospital settings. Lobo said Stryker created a Smart Care business unit at the beginning of the year combining Vocera and care.ai, and said Smart Hospital launched with “seamless integration” across those platforms and ProCuity beds, with “very positive” early customer feedback.

Beach will transition to CFO of Stryker’s MSNT group, Lobo said, with Nick Mead set to assume the role of vice president of investor relations on May 1.

About Stryker NYSE: SYK

Stryker Corporation is a global medical technology company that designs, manufactures and markets a broad range of products and services for use in hospitals, surgeons' offices and other healthcare facilities. Its primary business activities span orthopedics (including joint replacement implants, trauma and extremities products), surgical equipment and operating room technologies (such as visualization, navigation and powered instruments), neurotechnology and spine solutions, and patient-handling and emergency medical equipment.

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