Looking at SYK’s international business
Stryker (SYK) is a highly diversified company with a presence across the world. However, a majority of the company’s revenue, or 72%, comes from its US business. Its revenue growth in international markets was ~6.7% in 3Q16, whereas its revenue growth in the United States was ~6% in the quarter.
The company mostly focuses on Europe and emerging nations such as China and India in international markets. Over the last few quarters, emerging market sales weakness dragged on Stryker and its peers Becton, Dickinson and Company (BDX), Thermo Fisher Scientific (TMO), and Abbott Laboratories (ABT). Investors can consider the PowerShares S&P 500 Low Volatility ETF (SPLV) for exposure to Stryker. Stryker accounts for 0.96% of SPLV’s total holdings.
As discussed in the previous article, Stryker established a transatlantic operating model (or TOM) at the beginning of 2015 to gain a higher market share in Europe. The company’s initiative yielded results, and Europe became accretive to its total sales in the year.
At the beginning of 2016, Canada joined the company’s TOM, and it registered a strong performance in 3Q16. The company expects Canada to be accretive to Stryker’s total sales in 2016.
Stryker aims to grow in the emerging markets in the premium and mid-tier segments. The company acquired Trauson, a company specialized in the treatment of spinal trauma, in China in March 2013 in order to enter the mid-tier segment. It started launching related products in the market in 2016.
Emerging markets have seen weakness over the last few years, but in 3Q16, Stryker registered positive emerging market growth in the mid-single digits. Its sales in China continued to witness challenges, but the company expects to overcome these in 4Q16. Sales in China continue to be impacted by supply issues, but they’re expected to improve due to the easing of last year’s comparables.
Next, let’s discuss one of the company’s core strategies: cost transformation for growth.