Dive Brief:

• Stryker's U.S. orthopaedics and spine sales dropped approximately 65% during the month of April, the Kalamazoo, Michigan-based medtech shared on an earnings call Thursday afternoon. 
• Amid a near total halt in elective surgeries due to the COVID-19 crisis, Stryker is particularly vulnerable: Up to half of its total revenues are tied to procedures that can be deferred, the company estimates. 
• Simultaneously, other parts of Stryker's portfolio are seeing what CEO Kevin Lobo called a spike in demand as hospitals stockpile stretchers and beds, and increase use of the mobile CT scanner gained in the acquisition of Mobius Imaging last fall to take chest images when assessing patients for coronavirus.

Dive Insight:

Like its peers, Stryker's sales decline has accelerated since recording a 30% year-over-year decrease in the last week of March, when state lockdown orders began and hospitals stopped most non-essential procedures.

Still, the company's projected 35% to 40% overall drop in April sales isn't quite as steep as those of some rivals. Boston Scientific said on its earnings call Wednesday its global sales in April were down approximately 45% to 50%. And Medtronic said in an April 21 COVID-19 update that U.S. weekly revenue, which accounts for over half of the company's business, had declined an average of 60% year over year during "the last few weeks."

For Stryker, the coronavirus' first quarter impact was "most pronounced" on hip and knee replacement procedures, Lobo said. The other part of Stryker's ortho division, its trauma and extremities business, is also taking a hit as social distancing measures lower the number of people engaging in high-risk activities like driving or working at construction sites.

Stryker's largest MedSurg division appears better positioned during the pandemic, posting more muted U.S. sales declines in April of roughly 25%. Although MedSurg faces lower demand for endoscopy products, it benefited from sales of beds, stretchers and emergency care equipment. 

Large capital equipment sales are also poised to suffer. Momentum for the company's Mako surgical robot line is likely to slow, Lobo said. "Liquidity of the hospitals is important when you're outlaying large amounts of money. But we see tremendous signs of continued interest. No order is being canceled, just being delayed a little bit until elective surgeries resume."

In assessing Stryker's near-term prospects, Jefferies kept its rating for Stryker at 'Hold.' "The debate for a lot of medtech names though is how 2021 unfolds and if pent up demand and catch up in surgeries leads to a bigger year or if the economy and other factors depresses results. We're taking a middle ground for now," analyst Raj Denhoy wrote in a note to investors Thursday. But with so much business tied up in elective procedures: "the next several months will be a bumpy ride."

Stryker management offered few new details on the planned acquisition of Wright Medical, but said the deal is on track to close around the end of this year's third quarter. Wright shareholders voted April 24 to approve the deal and the tender offer, with a threshold of 80%, now expires June 30. And amid the economic downturn, Stryker said it's expecting "a minimal level of sales force attrition" from the Wright team. Like many other medtechs, Wright opted to significantly reduce compensation for executives and board members in response to the pandemic.

Lobo said that slowing M&A activities is among Stryker's current cash-conserving measures, alongside reducing planned capital expenditures, freezing hiring, cutting the leadership team's salaries, and furloughing some workers as certain manufacturing lines are temporarily halted.

But Lobo suggested dealmaking is merely slowed, not altogether stopped. 

"I could see that we would get back to smaller tuck-in acquisitions," Lobo told analysts. "We have slowed it. We have paused it. We have not turned it off. We're keeping close to the market just to understand. But I think, in some ways, it will allow us to have more time over target and be smarter about where we are choosing to execute on M&A opportunities."

With the greatest regional impacts of COVID-19 isolated to the end of the first quarter, Stryker's revenue growth of 2% to $3.59 billion exceeded Wall Street's consensus estimate by about $130 million. GAAP earnings per share of $1.30 missed analysts' targets by about 26 cents.

China "was clearly the weakest" geographical market during the first quarter, Stryker reported, but Japan, Canada, and smaller countries in Europe and emerging markets generated stronger results. The company anticipates a second-quarter recovery in China, but worsening impacts from COVID-19 in other regions.

Stryker on March 31 withdrew its prior 2020 financial guidance predicting organic sales growth between 6.5% and 7.5%. The company declined Thursday to offer new second quarter or full year financial guidance.