Recall costs wipe out Stryker's profit

Stryker ($SYK) ticked its overall revenue up about 1.3% last quarter, but the costs of all-metal hip recalls and FDA ire erased that growth, dragging the company's net profit down 13.1% compared to the previous year.

The Michigan device giant pulled in about $2.2 billion in sales in the first quarter, but the spike in costs left it with $304 million in profit, down from about $350 million in the same period last year.

Stryker spent $40 million to settle claims related to the recalled Rejuvenate and ABG II hip implants on the quarter, and the company reported another $40 million charge related to ongoing regulatory problems. Added to $20 million for integrating acquisitions, the charges were enough to negate the sales growth.

In the first quarter, Stryker posted mostly tepid growth among its business units, with reconstructive device sales increasing 1.2% to $969 million and surgical product revenue staying flat at $824 million. Stryker's smallest segment, neurotechnology and spine, grew 4% to $397 million on the quarter, due entirely to a 10% leap in neurotechnology sales.

To date, Stryker has spent about $230 million to deal with the hip recalls, and the company has said the costs of settling suits and covering surgeries could swell to $390 million before all issues are resolved.

On top of that, the company received an FDA warning letter for marketing its now-recalled Neptune waste management system without agency approval. Each month that device is off the market will subtract about $17 million from expected sales, Vice President Dean Bergy said on a call with investors Wednesday, and Stryker doesn't expect to relaunch Neptune until late this year.

Despite the sluggish quarter, Stryker is still projecting revenue growth of between 3% and 5.5% for the full year, confident its recent acquisitions can bolster returns. Headlining the company's of-late dealmaking is its $764 million buyout of Chinese orthopedics manufacturer Trauson Holdings, which closed in March. Stryker is counting on Trauson to give it a foothold in the burgeoning Chinese space, allowing it to cash in with an established brand in a huge market with an aging population.

- read Stryker's full results

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