Good day, ladies and gentlemen, and welcome to the Stryker 2018 Annual Meeting of Shareholders. At this time, all participants are in listen only mode. If anyone should require operator assistance at any time during the conference, press star then zero on your touch-tone telephone. As a reminder, this conference call is being recorded. This presentation contains information that includes or is based on forward-looking statements within the meaning of the Federal Securities Law that are subject to various risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in such statements.
Such factors include, but are not limited to, weakening of economic conditions that could adversely affect the level of demand for our products, pricing pressures generally, including cost containment measures that could adversely affect the price of or demand for our products, changes in foreign exchange markets, legislative and regulatory actions, and anticipated issues arising in connection with clinical studies and otherwise that affect U.S. Food and Drug Administration approval of new products, potential supply disruptions, changes in reimbursement level from third-party payers, a significant increase in product liability claims, the ultimate total cost with respect to the Rejuvenate and ABG II matter, the impact of investigative and legal proceedings and compliance risk, resolution of tax audits, the impact of federal legislation to reform the U.S. healthcare system, changes in financial markets, changes in the competitive environment, our ability to integrate acquisitions, and our ability to realize anticipated cost savings.
Additional information concerning these and other factors is contained in our filings with the U.S. Securities and Exchange Commission, including our annual report on Form 10-K and quarterly reports on Form 10-Q.
Good afternoon, everybody. On behalf of the Board of Directors of Stryker, I would like to welcome you to the 39th Annual Meeting of Shareholders. I'm Kevin Lobo, and I have the privilege to serve as Chairman and CEO of Stryker. Also participating in the meeting is Dean Bergy, Vice President and Corporate Secretary. I am pleased to see a number of Stryker leadership alumni and their families in the audience. Let's please all acknowledge them with a round of applause. You are reminded that our meeting today may include forward-looking information. These factors are included in the most recent Form 10-K and are covered by the statement that you see on the screen. That I can officially call the meeting to order, I'll ask Dean to establish that this meeting has been duly called and that a quorum is present.
Thank you, Kevin, and good afternoon. With me, I have an affidavit related to the mailing of the notice of the meeting and proxy materials on March 21st, 2018, to all shareholders of record as of March 5th, 2018, the record date fixed by the board of directors. I have a certified list of the shareholders of record of the company as of March 5th, 2018, which is available for inspection by any shareholder during and immediately following the meeting, and the minutes of the 2017 Annual Meeting of Shareholders, which are also available for inspection by any shareholder. Irene Corby, Vice President, Internal Audit, and Sean Etheridge, Assistant Corporate Secretary, have been appointed to serve as inspectors of election.
Based on the proxies received, the inspectors have reported to me that a majority of the 373,112,916 shares of common stock entitled to vote are represented at the meeting, either in person or by proxy. A quorum of common stock is therefore present, and the meeting may proceed.
Thank you, Dean. On the basis of the secretary's report, this meeting is duly constituted, and we're now open and ready for business. First, I will introduce the individuals who serve as directors of the corporation. They are all in attendance, and I'll ask them to stand briefly before I introduce them. In the photo from left to right, Louise Francesconi is former president of Raytheon Missile Systems. She chairs our Governance and Nominating Committee. Andy Silvernail is Chairman and CEO of IDEX Corporation. Andy chairs our Audit Committee. Srikant Datar is the Arthur Lowes Dickinson Professor of Accounting at the Graduate School of Business Administration at Harvard University. Ronda Stryker serves on the board of Greenleaf Trust, Spelman College, and Kalamazoo College. She is the granddaughter of Dr. Homer Stryker, the founder of our company, and the daughter of Lee Stryker, a former president of the company.
Allan Golston is President of US Program for the Bill & Melinda Gates Foundation. He is our Lead Independent Director. Mary Brainerd is former president and CEO of HealthPartners, the largest consumer-governed US healthcare organization. Howard Cox is Special Limited Partner of Greylock. I'll speak a little bit more about Howard momentarily. Roch Doliveux is chairman of Pierre Fabre SA and former CEO of UCB, a global biopharmaceutical company. He chairs our Compensation Committee. Let's please acknowledge our current board of directors with a round of applause. I would now like to acknowledge our longest-serving director, Howard Cox, who is retiring from our board. Howard's tenure predates our time as a public company, where as a member of Greylock, they made the first external investment in the company. As you can imagine, that investment has paid off remarkably.
He has made innumerable contributions over his 44 years in helping us to set the company's direction, to make important decisions about executive leadership, and perhaps most importantly, providing his expert insights as the company evaluated acquisitions throughout the years. Howard demonstrated deep caring for the organization and strove to push us higher in every interaction we had with him. In honor of his enduring impact, we have named Howard Director Emeritus. Our board is deeply appreciative of Howard's contributions, and we ask you all to join in thanking him. Howard, please stand so we can recognize you. We are pleased to have identified two new extremely well-qualified candidates for director and nominated them for election at this meeting. I would like to introduce them as they are present today, seated with our current directors.
Sheri McCoy is former CEO of Avon Products and also former Vice Chair of Johnson & Johnson. Rajeev Suri is President and CEO of Nokia Corporation. I'll now move to our leadership team. I'm really proud and honored to be able to serve alongside these men and women who help guide the Stryker Corporation. I would ask them all to stand briefly before I introduce them. In the photo from left to right, Tim Scannell has led many businesses at Stryker and is leading our MedSurg and Neurotechnology group. Yin Becker is responsible for public affairs and communications. She brings many years of experience in MedTech. Lonny Carpenter has been responsible for global quality and business operations, Europe and Canada business operations, quite a title, and has also been leading our cost transformation efforts.
He now acts as Group President and advisor to the CEO, as I will touch on shortly. David Floyd leads our Orthopaedics group. He has vast experience within the Orthopaedics industry. Bijoy Sagar is our Chief Information Officer and is modernizing all of our IT systems across the company. Glenn Boehnlein is our CFO and is responsible for the company's financial operations. He's a CPA with broad experience in finance and accounting. Katherine Owen is responsible for investor relations and business development. She was formerly a Wall Street analyst. Graham McLean is President of Asia Pacific. He has held many leadership roles in functions and businesses during his Stryker career. Katy Fink is our Chief Human Resources Officer. She brings knowledge gained from a variety of HR roles, both at Stryker and other large multinationals.
Michael Hutchinson is our General Counsel. He has broad legal experience both inside and outside the company. As you can see, we have a talented and experienced leadership team, which is driven to fulfill our mission. I would now like to take a moment to thank Lonny Carpenter for his stellar 30 years with Stryker. He recently announced his plans to retire. Lonny embodies Stryker's mission and values and has been the key architect of numerous change initiatives, including our quality program, the establishment of our transatlantic operating model, and more recently, cost transformation for growth. His commitment to driving the cost transformation program and its sustainable impact on our margins is certainly one of the many thumbprints that Lonny will leave on our company. He will be greatly missed. We wish him and his family a happy retirement right here in Kalamazoo.
Let's please acknowledge Lonny with a big round of applause. Please welcome Viju Menon into Stryker and to Stryker's leadership team. He will be responsible for running our quality manufacturing, procurement, and logistics organization, taking over from Lonny. Lonny will be working very closely with Viju to help ensure a smooth transition. Viju joins us from Verizon, where he served as Chief Supply Chain Officer. There, he drove significant transformations in global sourcing and operations across all of Verizon's business units. Let's please acknowledge Viju with a round of applause. Next, I would like to acknowledge our other corporate officers, Dean Bergy, Corporate Secretary, Bill Berry, Controller, Jeanne Blondia, Treasurer, Irene Corby, Internal Audit, Bill Cymbaluk, Regulatory Affairs and Quality Assurance, David Furgason, Tax, and Bronwen Taylor, Compliance and Risk Management. Let's please give them a round of applause.
Here you see a list of our division presidents that run our businesses from a transatlantic operating model standpoint, as well as our international regions. They are responsible, really, for making Stryker go and driving our business day to day. We have two of our presidents here with us in the room today, Scott Maher, who runs Canada. Scott, you want to please stand. Spencer Stiles, who runs Global Instruments here in Kalamazoo. Also joining us today are Richard Witzel, partner of Skadden, Arps, Slate, Meagher & Flom, our corporate counsel, and Christopher Larsen, partner of Ernst & Young, our independent accounting firm.
We will now vote on the three proposals that are included in the proxy statement. Our corporate bylaws do not require motions and seconds, the polls are now officially open for voting on these proposals. Any shareholder of record who is present may vote by ballot, and if you have previously granted a proxy, your vote by ballot will automatically revoke your proxy. If anyone wishes to vote by ballot, please raise your hand and one of the inspectors will deliver a ballot to you. Your ballots will be collected after the proposals have been presented. If any shareholder in the room has a completed proxy in hand, it will also be collected at that time. If anyone during this voting period would like to speak or raise a question, please move to a microphone located in the aisle.
Any comments should relate to the specific proposal being voted on. An opportunity to ask general questions will be provided later in the meeting. The first proposal is an election of 10 directors. The nominees for election as directors are Mary Brainerd, Srikant Datar, Roch Doliveux, Louise Francesconi, Allan Golston, Kevin Lobo, Sheri McCoy, Andrew Silvernail, Ronda Stryker, and Rajeev Suri. There have been no other nominations during the designated nominating period, and in accordance with our bylaws, the nominations are now closed. The second proposal to come before the meeting is ratification of the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for 2018. Under SEC rules, the responsibility for appointment and oversight of the company's auditors resides with the audit committee. Today we continue our practice of asking shareholders to ratify this appointment.
The third proposal to come before the meeting is Say on Pay, an advisory vote to approve the compensation of the company's named executive officers as disclosed in detail in the proxy statement under Compensation Discussion and Analysis and executive compensation. All of the proposals on the agenda are now before the meeting and the polls are open. Please complete your ballot and return it to the inspectors. Proxies will also be collected at this time. The voting has ended, and the polls are now closed. The inspectors will complete the vote count, and we will announce the results later in the meeting. While that is taking place, Kevin will share a view of Stryker's performance and future outlook.
Thank you, Dean. I always like to start all my business updates with Stryker's mission and values. We launched the mission and values four years ago, and they have become really a pillar in our organization everywhere around the world. At every location that I travel to, as far away as Vietnam versus here in Kalamazoo, you see the mission and values on the walls of our buildings, and they really are the unifying force that brings together a very decentralized company. This is our company strategy on one page. I'm not going to go through all of the details, but what I'd like to focus on is really the key statement at the top. It's, we are driving market-leading growth and aspiring for global category leadership everywhere where we play. You can see here the four pillars.
Customer Focus is really something differentiating about Stryker, that we have decentralized business units with dedicated marketing, sales, R&D, and business development that are intensely focused on innovating for our customers. Innovation is the lifeblood, the second pillar of our organization. We spend about 6.5% of sales on R&D, and we also are a very acquisitive company, and we also bring in innovation via acquisitions. Globalization has been a key thrust for Stryker over the past five years, and we've made significant progress, specifically in Europe, but even around the world, in becoming a real global powerhouse to augment the strength that we have here in the United States. Finally, Cost Transformation, which I alluded to when I was talking about Lonny. That's been a big initiative. We're now in year three and really starting to deliver significant value and be able to drive operating margin expansion.
On the bottom, you see the two foundational elements of Stryker. Our Talent Offense, our focus on people and culture, which I'll talk about a little later. The kind of accolades that we receive as a great place to work is evidence of our focus on talent and on culture. Quality First. We put the Stryker brand on all of our products as a master brand, so we have to hold our products to very high standards of quality. These are the sales results for 2017. We surpassed, for the very first time, $12 billion in revenue. You can see here, we're a very diverse company with products across three major segments, MedSurg, Neurotechnology and Spine, and Orthopaedics. I love this slide. It's my favorite slide in the deck. This shows our history of growth since becoming a publicly traded company in 1979.
That's 38 consecutive years of sales growth. This is not a bad slide either. This shows Stryker's stock price for the past five years. You can see that the Standard & Poor's Index had a pretty good period over that period of time at 87%. We outperformed by a very significant margin, delivering 182% growth in the stock price over five years. When I talked about market-leading growth, this is the evidence of our market-leading growth. We track our performance by division and as an overall company versus the MedTech market. You can see here in each of the years, 2014, 2015, 2016, and 2017, we have outpaced the market, and the dark bar is the Stryker organic growth, sales growth.
You can see that not only have we outpaced the market every year on average a little over 200 basis points, but our own growth has accelerated each of those years from 5.8% all the way up to 7.1% organic sales growth in 2017. Leveraged earnings. We want to be the top-tier growth company. We also want to deliver leveraged earnings. You can see in the first two years, 2014 and 2015 wasn't as strong in terms of driving the leverage. The last two years, we've had terrific EPS growth, 13.3% and 11.9%. Our goal is clearly to have the dark bar be much larger than the light bar, which is the sales growth. We want to drive earnings faster than sales, and that's what we've done the last two years.
Based on our guidance in 2018, you should expect us to do the same thing again in 2018. Our results for Q1 were recently posted. 7% organic sales growth in the first quarter of 2018, despite having one less selling day. If you adjust for the one less selling day, it's really 8% organic sales growth. We had a fantastic first quarter performance. Very strong balance across businesses and geographies. This balance is really healthy. When you have all of your businesses and all of your geographies performing well, you can weather certain storms that may occur in some businesses. It sets up to be a very successful year in 2018. Our adjusted operating margin expanded 70 basis points to 25%. This focus on cost transformation is to improve our operating margin, and we had a very successful first quarter.
Our adjusted earnings per share increased 13.5% to $1.68, which exceeded the high end of our guidance range. A very strong first quarter. This is a slide we've shown in the past. This is our long-term sustainable financial targets. We intend to continue to grow at the high end of MedTech, having organic sales growth at the high end, as I showed you in the previous bar chart. We expect to deliver 30 to 50 basis points of operating margin improvement each and every year in the future, and our earnings per share growth of at least 9%. You saw the last two years, we handily exceeded 9%. We had 13.5% in the first quarter. With our new guidance, we certainly expect this year we'll continue to exceed the 9%. We set a floor for EPS as you think about the next four or five years.
Looking at the guidance for 2018. First, on the second quarter, we have $1.70-$1.75 a share of adjusted earnings per share. We revised our full-year outlook, we raised both our organic sales as well as our earnings per share. When we started the year, we said we were going to grow sales 6%-6.5%, which quite frankly, was seen as the high end of MedTech. Based on the very strong first quarter, we've raised that to 6.5%-7% for full-year organic sales growth. Our EPS at the beginning of the year was $7.07-$7.17. We've raised that based on the strong first quarter and outlook for the year to $7.18-$7.25. Double-digit growth on earnings per share is what we are now guiding to. I was talking about the setup for the year.
Very strong across all three of our business segments. In Orthopaedics, we have market-leading growth, and we demonstrated that in the first quarter with extremely strong growth with our Mako business, our knees business, our trauma and extremities business far exceeding the market. The strength of Mako, the 3D-printed implants, which are particularly important for cementless knees and trauma and extremities. Our dedicated business unit focus has been driving double-digit growth for the past four or five years. In MedSurg, we have tremendous momentum. MedSurg had a fabulous year last year, but it's continuing behind very strong new product cycle as well as acquisitions. Acquisitions primarily, more recently within endoscopy and instruments, are really providing a lift to our business. Medical had a couple of big acquisitions two or three years ago.
Those are now part of our organic growth, and they're driving terrific growth. You got a chance just outside this room to see the Physio-Control, the automatic CPR product, as one example of terrific innovation that we were able to bring in via acquisitions. Neurotechnology has been a growth rocket for Stryker for the past few years. Grew about 20% in the first quarter, we expect continued high growth. Spine has been a bit more of a challenged business. The market is roughly flat, and our goal is to kind of grow in line with the market. That's not going to be as high a growth business for Stryker, but trying to grow in line with a challenged market. Our capital deployment strategy has been very consistent over the past five years.
We prioritize acquisitions as the first use of our cash, dividends growing in line roughly with EPS, the remainder are share repurchases. You can see here the picture from 2015-2017, more than 50% of the cash deployed for acquisitions. You should expect to see that same picture no matter what window of time you look at, one year, three year, five year. It does vary from year to year, but our goal is to spend more than half of our cash on acquisitions, and we do that, frankly, as a form of external R&D. We buy companies so that we can provide innovation to help fuel our growth. Talking about M&A, you can see here, these are just a sampling of the companies that we've acquired, the larger companies that we've been acquired over the past seven years.
You can see here two different colors. Most of the acquisitions we do are going to be blue, meaning they fit right into our core business. Another term for that is tuck-in acquisition. You buy a product or a technology, and you tuck it right into an existing business and give it to the existing sales force. Occasionally, we'll do the other color, which I guess looks sort of like a mauve or I guess gold on the screen here. That color is adjacencies. Adjacencies are businesses that are very close to our existing business, but they're different technologies. Sage and Physio-Control are good examples, where we're already in the ICU with beds and stretchers, but we didn't have the disposable products of Sage. We're already in the back of the ambulance with our powered stretchers, but we didn't have defibrillators and CPR products.
That's Physio-Control. We'd like to stay within our call points and our customer points, but they're different businesses. We're going to do a combination of both core business acquisitions and adjacencies. You can see Novadaq is the one that has both colors in the box. It's not a typo. We really bought Novadaq for the imaging, advanced imaging, fluorescence imaging to help surgeons see and do safer surgery. What came along with that was a tissue business for plastic surgery for breast reconstruction, which is a fabulous business. That was both a core business acquisition and an adjacency. Most recently, Entellus just closed in the month of March. We're very excited. That's an acquisition made by our instruments division here in Kalamazoo for minimally invasive sinus surgery. Really exciting acquisition.
We receive many accolades as a great place to work. They keep coming in year after year. I'm not going to talk about all of them. I'll just highlight two. On the bottom in the center, you see the LinkedIn acknowledgment. This is the second year in a row we've made the LinkedIn list of top attractors. LinkedIn, most people, I'm sure have heard of LinkedIn. You might be on LinkedIn yourselves. They know more about company's employees than companies do in some cases with their fancy algorithms and their deep analytics. There is no application process to be a LinkedIn top attractor. They just mine their data by themselves, and they create their own list with no input, no surveys. It's all using their own algorithms. To be externally acknowledged by an organization, this is across all industries, including the tech companies in the Bay Area.
It's all industries, and we've made the list two years in a row. Very excited about that. I also want to point out for the first time, we made the best workplace for women list at number 30. First time making that list. Not only are we making more lists globally, but we're also showing up as a great place to work for women, which I'm really thrilled about. In summary, we have a very talented and experienced leadership team. We're driving very strong organic sales growth, as you saw. Commitment to continuing to deliver leveraged earnings as we did the last two years. We're going to focus on innovation and acquisitions. That is the engine of growth for Stryker. We're going to enhance our global presence, this global operating model has been wildly successful in Europe, has been very successful in Canada.
Nice to see Scott here from Canada with double-digit growth in the first quarter and really performing very, very well. We have great performance in Japan. We're really becoming a very strong global organization, and we're going to continue to effectively deploy capital to enhance our shareholder returns. With that, I'll turn it over to Dean to talk about the voting results.
Thank you, Kevin. I am advised by the Inspectors of Election that each of the persons nominated for director in Proposal 1 received at least 280,451,910 votes in favor of his or her election, and therefore, each has been duly elected a director of the company. I am also advised by the Inspectors of Election that the shares representing a majority of the total votes cast on Proposal 2 were voted for ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm for 2018. I therefore declare that the appointment of Ernst & Young LLP for 2018 has been ratified. I'm also advised by the Inspectors of Election that shares representing 96% of the total votes cast on Proposal 3 were voted in favor of the advisory vote on the resolution relating to the company's named executive officer compensation.
The final results of the meeting will be filed on Form 8-K with the SEC shortly. The meeting is now adjourned.
Okay, if you'd like to ask a question, please proceed to one of the microphones that we have in the aisles. Raise your hand. Before you ask a question, please state your name and if you're affiliated with any organization. We ask that you grant all the speakers the courtesy of concluding their remarks without any interruption. Please feel free to proceed. If you would prefer to have a microphone brought to you, please just raise your hand.
Thank you. I'm Bill Morris from Battle Creek, Michigan. I'm not affiliated; I'm a retiree. I want to thank you for another great year. Sales continue to grow. Acquisitions broaden the product mix. Earnings appear on track, debt is stable, profits increase. Dividends steady at $1.70. All of this is good. Again, thank you. However, as a small investor, I feel limited because of the very pricey per share price. With lows and highs of $120-$170 per share the past several years, it is both good and bad. Great for insiders and institutions. Bad for small investors who would like to participate more in a great company but are priced out.
I strongly suggest you consider a stock split for the short term. Looking forward, I also suggest the company establish a low-cost direct stock purchase dividend reinvestment plan administered by the company or transfer agents like EQ Shareowner Services or Computershare. Thank you very much.
All right. First of all, thank you for your kind words. We will take your suggestion under advisement. We'll talk with our board about that in the future. Thank you. Other questions? Yes.
John Smith from St. Johns, Michigan. Unaffiliated. My wife and I are stockholders for over 30 years. You're dynamo. Last year you said, I believe, that we had $250 million overseas. Have you decided what to do? Are you going to reward the stockholders or put it to R&D?
Yeah. Thank you. Obviously there's been a big change since last year's shareholder meeting. The passage of U.S. tax reform has been a big change. We had a lot of our cash, about 80% of our cash had been trapped outside the U.S. Now, with the passage of tax reform, we will have the ability to bring back that cash. If you look back at the chart that I showed with our capital allocation, that philosophy is going to continue. What's great about this change in the tax reform is we don't have to borrow money in the first quarter of the year to pay a dividend. We don't have to borrow money every time we do an acquisition. We'll be able to use that OUS cash.
Our intention is to continue with the current offense, which has been working for us extremely well, and to continue to deploy capital with a priority for acquisitions, continuing a steady increase in our dividends. If acquisitions don't come in a timely manner, because it's hard to predict the timing of acquisitions, then we will do some share buybacks. You should expect us to continue the same game plan that we have in place right now, which I think is serving the company and the shareholders very well.
I'm Nick Tuiz. I represent shares I gifted my wife years ago, and it's appreciated much better than any diamond ring I could have given her. Just one question about the 10-K. It shows that the income tax increased 280% from last year to this year. Could you add some light to that for us?
Sure. That income tax increase is directly related to the passage of the tax reform. There's a one-time effect that we have. It really gets paid over an eight-year period of time, that's not something that you should be too concerned about. A lot of companies have the same issue. Just it's a one-time issue related to tax reform. We are going to get the benefit of lower tax in future years. Our U.S. tax rate will drop to the 21% level, we will get that benefit. Overall, tax reform is fairly neutral for Stryker. We get the benefit of OUS cash. Some of the favorable tax that we had from outside the U.S. actually goes up. Our tax rate is going to be pretty similar, maybe slightly higher than it was in the prior year.
This is a one-year anomaly just related to a one-time accounting issue related to tax reform. It hasn't fundamentally changed. Our tax rate's going to be in the 16.5%-17% range year-over-year. That anomaly you'll see in all companies at this stage of the game based on the timing of tax reform. Thank you. Any other questions? Okay. Dean, anything else?
No.
Okay, great. Well, first of all, I want to thank everybody for your support of Stryker. We are proudly Michigan-based, and we continue to grow around the world. We look forward to another great year in 2018 and look forward to seeing you all next year. Thank you.