Stryker Cuts 2013 Forecast on Device Tax, Europe Sales

Stryker Corp. (SYK) cut its earnings forecast for 2013, saying the medical device excise tax starting in January and poor performance in Europe will crimp the company’s growth.

Net income for the third quarter rose to $353 million, or 92 cents a share, from $327 million, or 84 cents, a year earlier, the company said yesterday in a statement. Earnings excluding one-time items were 97 cents, one penny below estimates, while sales of $2.05 billion fell shy of forecasts from 28 analysts compiled by Bloomberg.

The medical device excise tax will claim $100 million annually, said Chief Executive Officer Kevin A. Lobo, who took the helm of the company on Oct. 1. While Stryker had said it would absorb those costs and still grow at least 10 percent, that goal is no longer possible, Lobo said in a conference call. The company now targets 2013 earnings excluding certain items of $4.25 to $4.40, an increase of 5 percent to 8 percent from 2012.

“We are taking a more conservative stance that reflects the current uncertainties and mitigates the risk of a shortfall relative to expectations,” Lobo said.

Stryker declined less than 1 percent to $52.56 at 10:19 a.m. in New York. The shares had gained 6.3 percent this year through yesterday.

Stryker also reduced its forecast for 2012 to $4.04 to $4.07 a share, from $4.09, largely because of sales shortfalls in southern Europe and Germany and lagging capital equipment sales, Lobo said.

Sales Expectations

“In the month of September, we did not see the expected acceleration in growth in sales outside the U.S., as well as with our capital businesses, resulting in a misalignment between our top line and spending,” he said. “We are assuming this is the new normal. That’s the reason for the adjustment for the guidance in 2012 and 2013.”

Rectifying the situation in Europe, which is evenly split between company-specific issues and the greater economy, is Stryker’s top priority, Lobo said.

“We’re going to be taking more aggressive action,” he said, declining to be more specific. “The challenges have more to do with basics, management and leadership, staying close to the customer and not getting distracted.”

To contact the reporter on this story: Michelle Fay Cortez in Minneapolis at mcortez@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net