Stryker Corp and Edwards Lifesciences Corp posted higher-than-expected quarterly earnings on Tuesday, reflecting healthy demand for medical devices amid a gradual economic recovery.
The improving economy helped Stryker as more people decided to replace aging hip and knee joints, while Edwards benefited from solid demand for its heart valves that are implanted in a less-invasive procedure than traditional open heart surgery.
Demand is improving as patients who postponed joint replacements and other elective surgeries in the recession begin scheduling procedures again.
If you look at Stryker's results and what they mean for the industry, I think you are seeing a slow and steady recovery here, said Jeff Johnson, analyst with Robert W. Baird & Co.
Johnson & Johnson on Tuesday also reported strong sales of its medical devices, which include orthopedic implants and surgical products, and indicated it saw a rebound in businesses such as diabetes care, vision care and aesthetics.
Strong double-digit growth in sutures and other product lines could also signal very solid procedure volumes, which bodes well for hospital supply companies, said Leerink Swann analyst Rick Wise.
Stryker said its first-quarter net income rose to $322 million, or 80 cents a share, compared with $281 million, or 71 cents a share, a year ago. Results beat the average analyst estimate by 2 cents a share.
First-quarter net sales rose 12.4 percent to $1.80 billion. Worldwide orthopedic implant sales rose 10.7 percent to $1.08 billion on higher shipments of hips, knees, spinal and trauma implants.
Sales of medical and surgical equipment in the company's MedSurg division rose 15 percent to $722 million on higher shipments of endoscopy and communications systems.
That's a very strong number given what is still somewhat of a pressured capital budget situation in the U.S., Johnson said.
HOSPITALS CRACK OPEN THEIR WALLETS
Hospitals pulled back quite a bit last year, but as procedures come back, they need to ramp up their spending a bit, Johnson said. And they will have to continue spending to expand and take on the higher patient loads going forward as a result of health reform.
Stryker Chief Executive Stephen MacMillan said he expects hospital capital spending to increase at a low to mid-single-digit rate this year.
With respect to capital budgets, we continue to project a gradual recovery as the economic environment slowly improves, MacMillan told analysts on a conference call.
Stryker said it continues to expect net earnings in 2010 of $3.20 to $3.30 per share on a constant-currency sales growth rate of 5 percent to 8 percent.
J&J reported a 12.5 percent jump in sales of medical devices to $6.23 billion in the quarter. Our surgery businesses all look like they are recovering, J&J Chief Financial Officer Dominic Caruso said.
Edwards reported first-quarter net income of $47.7 million, or 80 cents a share, down from $60.5 million, or $1.03 a share, a year ago, when a special gain from a $27 million milestone payment boosted results.
Analysts had expected Edwards to earn 79 cents a share.
First-quarter net sales rose 8.6 percent to $340.5 million.
Edwards raised the low end of its 2010 earnings forecast by two cents, to $3.52 to $3.60 per share, or $1.76 to $1.80 per share on a post-split basis, citing an improving product mix.
(Reporting by Susan Kelly; Editing by Bernard Orr)