Stryker Reduces Tax Rate, Repatriates $2B For Acquisitions
By Jof Enriquez,
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Stryker Corporation reported that third quarter net sales grew across all business units despite incurring a one-time tax hit for moving some IP assets to the company’s new European regional headquarters in Amsterdam. The company also announced that it will repatriate $2 billion in cash for acquisitions in 2015.
Net sales rose 11.1 percent to $2.4 billion during the third quarter, according to a company press release. The MedSurg business, which includes endoscopy and bone-cutting instruments, grew the fastest, soaring by 16.3 percent and raking in $936 million in sales. The company’s core reconstructive business of orthopedic implants grew 8.5 percent to $1.0 billion, while the neurotechnology and spine business expanded 6.5 percent to $437 million.
"The strength of our diversified model was evident again in the third quarter as organic sales growth accelerated to 8%. These results put us on track to deliver on our full year sales and earnings guidance," Kevin A. Lobo, chairman and CEO of Stryker, said in the statement. "We also launched our European headquarters, which will strengthen our business in the region and provide strong financial benefits, including a cash repatriation of approximately $2 billion planned in the second half of 2015."
Stryker “has already absorbed several U.S. tax provisions related to the Amsterdam office and the planned cash conversion,” according to Modern Healthcare. The company had booked the tax expense related to the cash repatriation during the third quarter. The tax hit — along with charges from recalls of its Rejuvenate, ABG II, and Neptune products — reduced net earnings by 44.7 percent to $57 million compared to the same period last year, the company said.
Despite booking the tax hit in the latest reporting period, Stryker said the maneuver would benefit the company in the long term.
“The cash outflows for payment of this tax will occur between the fourth quarter of this year and the first quarter of 2015. The transfer of the intellectual property provides us more flexibility in managing our operations in the future and aligns the ownership with where our primary European leadership team will be located,” Stryker VP and CFO William Jellison said in a conference call.
“This project will also generate some ongoing tax benefits, which as we mentioned previously, are expected to further reduce our overall adjusted operating tax rate in 2015 by approximately two full percentage points. Currently, we are expecting to reinvest approximately half of these savings directly into our business,” Jellison added during the call.
Given the expansion of its cash balance in the next several months, Stryker said it is mulling over different strategies to utilize assets, including the possibility of taking an aggressive stance on acquisitions.
“We are absolutely first and foremost focused on acquisitions, but dividends and stock buybacks are also a key part of our overall cash structure strategy,” Jellison said during the call.