Third-quarter profits at Stryker Corp. were dampened by one-time charges related to a 2012 recall of hip devices.
The Kalamazoo, Mich.-based devicemaker voluntarily recalled its Rejuvenate and ABG II hip stems in June 2012 after finding out the implants caused tissue damage and hip pain.
Recall charges totaled $150 million in the third quarter, up significantly from $29 million reported during the same period last year.
The charges impacted third-quarter profit, which was $345 million before income taxes, down from $425 million the year before. Stryker reported paying 88% less in income taxes this quarter as compared to last year, which greatly skewed its net earnings.
Stryker's bottom line, accounting for income taxes, was $301 million in the third quarter, four times higher than $57 million in profit reported during the same period last year.
A Stryker spokeswoman said the lower tax rate comes with the establishment of the company's European regional headquarters. Recall charges fluxuate over time as "additional facts become available and assumptions become more refined," she said.
Total sales rose just slightly, but the company saw positive sales growth in the neurotechnology and spine segment, which experienced a 5% bump.
Stryker reported $2.42 billion in sales for the three months ended Sept. 30, up 1.3% from $2.39 billion during the same period last year. There was less than 1% growth in its other segments—orthopedics and medical surgical.
Kevin Lobo, Stryker's chairman and CEO, said during a conference call Thursday that the spine device sales have been “pretty stable” for the company, which has seen positive results after releasing new products during the past two quarters.
Nine-month sales were $7.2 billion, up 2.5% from $7.1 billion in 2014. Nine-month income after taxes was $917 million, two-and-a-half times higher than $255 million the year prior, because of lower taxes and recall charges.
Stryker expects constant currency sales growth for 2015 to be in the range of 6.5% to 7.5%, mostly organic. Also based on current exchange rates, Stryker expects adjusted diluted net earnings per share to be between $5.06 and $5.12.
Stryker has been focusing on emerging foreign markets. The U.S., however, still accounts for more than half of its sales. Domestic sales were up nearly 8%, reported at $1.7 billion. International sales were down 12.6% to $664 million.
The company is preparing to launch a total knee replacement capability for its MAKO robotic surgery platform, which it acquired in 2013 for about $1.4 billion.