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Stryker's sales up 5%, but recalls swallow profits

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Stryker CEO Kevin Lobo

Stryker ($SYK) is still feeling the sting of its 2012 all-metal hip recalls, and ongoing costs negated strong sales in the second quarter, leaving the Michigan device giant with a 34.5% profit drop.

Net sales ballooned 5% in Q2, reaching $2.2 billion thanks to growth across all of Stryker's business units. But Stryker had to cough up another $170 million to cover lawsuits and revision surgeries tied to its now-recalled Rejuvenate and ABG II hip implants, dragging net profit down to $213 million.

To date, Stryker has spent about $400 million to deal with the fallout over the two recalled devices, already $10 million more than the worst-case scenario CEO Kevin Lobo forecast back in January. The recalls' attendant charges have sapped up revenue gains of 5%, 1.3% and 5.5% over the past three quarters, and the company hasn't said when it expects to get clear of the scourge.

That said, across-the-board sales growth is nothing to bemoan. In Q2, Stryker's reconstructive devices business grew 5.6% to $979 million, while surgical technology jumped 4.2% to $819 million, and neurotechnology and spine swelled 5.4% to $414 million. Removing the effects of the recalls and other charges, Stryker's net profit would have reached $380 million, good for 1.3% growth.

"We delivered another solid quarter of operational results with balanced sales growth across all segments and geographies, as well as strong cash flow performance," Lobo said in a statement.

For the full year, Stryker has lifted the low end of its revenue projection, expecting 4% to 5.5% sales growth for 2013, topping out at about $9.2 billion.

- read Stryker's full results

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