Stryker ($SYK) is signaling that it could hit the brakes on acquisitions after an aggressive string of at least a half-dozen purchases over the past few years, including the $1.7 billion purchase of robotic surgery player Mako Surgical in December 2013. That's going to push the company to make the most of its organic growth from its existing holdings--but last year almost one-third of Stryker's sales growth came from acquisitions.
The company made it clear on its most recent earnings call that acquisitions are the top priority for its cash. But it qualified that by noting that it would consider other uses, if it was unenthusiastic about the acquisition environment.
Now it's instituted a new $2 billion in additional share repurchases. That's on top of the existing authorization, bringing the total repurchase allotment to almost $2.6 billion. When it reported for last year, Stryker guided to only about $400 million in share repurchasing for 2015.
"M&A is the primary use, in any given year we assume something in the $400 million range in terms of share repurchases and I think that should be the assumption around expectations at the start of this year given what we know," said Stryker VP of Strategy and IR Katherine Owen on the late January call.
She continued, "We would be open to larger buybacks but as a going-in assumption what's reflected in our range is the normal something in that $400 million-ish vicinity in terms of normal year buybacks."
If Stryker uses all or even most of that buyback authorization for 2015, that would be a significant strategy shift for the device player, which is focused on orthopedics, neurotechnology and surgical products.
Stryker chairman and CEO Kevin Lobo tried to allay any potential investor fears that the growth achieved through new acquisitions will grind to a complete halt.
"While M&A activity across the breadth of our product and service offerings will remain the primary focus of our long-term growth strategy, this new authorization recognizes that the strength of our balance sheet is sufficient to enable more significant share repurchases," Lobo said in a statement about the new repurchase authorization.
At year end, Stryker had a substantial stockpile--$1.8 billion in cash and another $3.2 billion in marketable securities. But it also had $3.2 billion in debt. Earlier this month it also boosted its dividend by 13% to $0.345 per share for the first quarter. Last year, the company spent $462 million on dividends, which totaled $1.22 per share in 2014.
The total spent on share buybacks by Stryker has been minimal for the last three years, which saw a lot of acquisition activity. It spent only $100 million, $317 million and $108 million on repurchases for 2014, 2013 and 2012, respectively.
The company is likely to focus on its fast-growing surgical business, while aiming to boost the other two. During the fourth quarter, medical surgical (or MedSurg) products were by far the company's top growing business, up 12.1% to $1.1 billion during the fourth quarter. Neurotechnology and Spine net sales gained 3.9% to $454 million, while Orthopedics was up 1.7% to $1.1 billion. Last year, the company spent $614 million on R&D, that's an increase of 14.6% over 2013 and roughly 6% of sales.
On the product front, Stryker also launched its Profess System for image-guided intranasal procedures and endoscopic sinus surgery. It's intended to be easy to use and ergonomic as well as smaller than existing systems. It also offers live video imaging for the first time, which previously required switching tools.
Shareholders didn't respond particularly well to the buyback authorization news, sending shares down about 1% in early trading on March 3.