Welcome to
the 4th Quarter 2015 Stryker Earnings Call. My name is Adrienne, and I'll be your operator for today's call. At this time, all participants are in a listen only mode. Following the conference, we will conduct a question and answer session. During that time, participants will have an opportunity to ask one question and one follow-up question.
This conference call is being recorded for replay purposes. Before we begin, I would like to remind you that discussions during this conference call will include forward looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC. Also, the discussions will include certain non GAAP financial measures. Reconciliations to the most directly comparative GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8 ks filed today with the SEC.
I would now like to turn the call over to Mr. Kevin Lobo, Chairman and Chief Executive Officer. You may proceed, sir.
Good afternoon, everyone, and welcome to Stryker's 4th quarter 2015 earnings call. Joining me today are Bill Jelison, our CFO Catherine Owen, Vice President of Strategy and Investor Relations and Glenn Boehnlein, who will be taking over for Bill on April 1. Following my opening comments, Katherine will provide an update on Mako, while Bill will offer more details on our quarterly results before turning to questions and answers. With a 6.4% increase in organic sales in Q4, we continue to deliver on our goal of driving top line growth at the high end of medtech. This marks the 11th consecutive quarter where Stryker delivered 5% or better organic sales growth, demonstrating strong consistency over time.
Our diversified sales footprint has once again proven to be a key component of our growth strategy as all of our segments, Orthopedics, MedSurg and Neurotechnology and Spine posted good results in the quarter. These performances underscore the strength of our sales and marketing execution and our innovation engine, which is characterized by healthy R and investment and a focused and disciplined M and A effort. Approximately 70% of our sales are derived from our U. S. Businesses, which once again led growth, posting an impressive gain of approximately 8%.
I am also pleased with the growing momentum out of Europe, including strong Q4 results, benefiting from the shift to the transatlantic operating model at the beginning of 2015. We are building on this success as we start 2016 with Canada rolling into the model and the other regions now reporting to our Group Presidents, Tim Scannell and David Floyd. Our international growth of roughly 4% in constant currency was once again impacted by soft performances in China and Brazil. However, as you've seen, we have demonstrated the ability to offset isolated geographic softness through strength in our larger markets. Turning to earnings, our adjusted EPS for Q4 of $1.56 is at the high end of our revised range of $1.53 to 1.56 primarily driven by the strong top line.
The balance of the P and L came in as expected, which Bill will cover in his section. Looking ahead to 2016, we expect our sales momentum to continue and are targeting organic sales growth for the year of 5% to 6%. This takes into account expected softness in emerging markets for a good portion of the year. In addition, the 2 year suspension of the med device tax provides us with the opportunity to bolster investments that will help drive sales growth and innovation as we plan to invest the majority of this temporary benefit. We are also continuing on our path toward driving greater cost efficiencies, which is a multi year opportunity.
Over the past year, we have been focused on identifying and prioritizing the key target areas for cost reduction within our organization. As we shift into 2016, we are moving toward project implementation under the leadership of Bruce's President, Lonnie Carpenter. We have identified significant areas of savings centered around optimizing our plant network, rationalizing our product lines, professionalizing our indirect procurement in a similar manner as we have done with direct materials, moving to a common ERP system and driving more shared services. Given our history of decentralization, there's considerable opportunity ahead of us in this program. We believe a methodical and deliberate approach to these efforts will allow us to preserve Stryker's competitive differentiation in the areas of sales, marketing, R and D and business development, while helping to ensure we are consistently delivering P and L leverage.
This is reflected in our 2016 adjusted EPS range of $5.50 to $5.70 a share. This is an increase of approximately 7.5% to 11.5% versus 2015 and includes a negative foreign exchange impact of $0.12 to 0 point Finally, I'd like to take a moment to extend my thanks and appreciation to Bill Jellison, who has announced his plans to retire following an impressive 36 year career, last three of which have been with Stryker. Bill was able to quickly move toward implementing a layered hedging program, which has proven to be successful at mitigating our transactional FX exposure. In addition, he helped execute on a number of acquisitions, facilitated the establishment of our European regional headquarters that's enabled significant savings and has also helped to shape our comprehensive cost reduction program. These accomplishments have meaningfully contributed to our success and were achieved while enabling our internal talent pool to develop, including Glenn Vaneline, who has been promoted to CFO effective April 1.
Glenn has been with Stryker in various financial leadership roles since 2003, most recently serving as Group CFO for the MedSurg and Neurotechnology Group. This group represents roughly half the company and has been a consistent force behind our strong results. I am confident in Glenn's ability in coordination with the broader finance organization to help build on our strong momentum. Before turning the call over to Catherine, I'd ask Glenn to make a few comments. Glenn?
Thanks, Kevin. I appreciate the comments and the support, but I also want to thank Bill for his leadership organization over the past few years and for his commitment to helping ensure a smooth transition as I take on new responsibilities. It's a very exciting time at Stryker, and I'm thrilled to be part of such a great organization with so many talented and dedicated people. I'm also looking forward to meeting many of our shareholders' analysts at the various events going forward. And with that, I'll turn the call back over to Catherine.
Thanks, Glenn. The focus of my comments today will be to provide an update on Mako. 2015 was a year of building momentum from Mako's robotic assisted surgery as we continue to leverage our considerable sales and marketing infrastructure to help drive sales. We are particularly pleased with the increased demand for the hip indication, which has been augmented by combining the robotic technology with our proven portfolio of Stryker hip systems. Combination enables surgeons to use a best in class hip implant with a long term proven clinical history on a robotic assisted platform, which helps drive consistency, enhance surgeon and patient experience and we believe over time, clinically demonstrated benefits.
In total, we sold 31 24 of which were in the U. S, which represents a solid ramp from the start of the year and a significant jump year over year from 20 in the Q4 of 2014. For 2016, we are focused on continuing to drive adoption with our current indications, which we believe offers considerable opportunity to drive ongoing robot placements. We are also excited about the potential for the total knee indication with our flagship triathlon system. This year, our efforts will be centered around gaining user experience with key opinion leaders to help ensure an optimal rollout as we look to full commercial release in 2017.
We believe the commercial launch, which will be aided by podium presentations from the early users groups, will be in place as we head into next year. With that, I'll turn the call over to Bill.
Thanks, Catherine. I'd like to start off by saying I've enjoyed working with Kevin and everyone at Stryker, especially the entire finance organization, who have made significant contributions over the last few years helping the company deliver on its financial results. Coming to Stryker was a strong cultural fit and personal fit from the 1st week that I joined the company. We ended 2015 at the high end of both our initial sales and earnings guidance that we set at the beginning of the year. As we look at 2016 and set our initial guidance, I am confident that our sales momentum, strong product portfolio and pipeline and the cost containment initiatives we are driving position us well for the future.
I look forward to ensuring a smooth transition with Glenn and entering another stage of my life. I will continue to engage actively in many of my passions, travel with my family and friends and explore additional Board opportunities. I want to thank all of you for your support. So turning to our financial performance. Sales grew 3.7% in the quarter, including a negative 3.2% impact from foreign currency translation.
Constant currency sales growth was 7%, which includes organic growth of 6 point 4%. GAAP EPS for the quarter was $1.38 per share versus 0 point 6 earnings per share were $1.56 a share for the quarter versus $1.44 per share in the 4th quarter last year. This quarter's EPS includes negative impacts of roughly $0.04 per share from foreign exchange, which was in line with our guidance. Most currency exchange rates against the U. S.
Dollar continue to be weaker than last year in the same period. The weaker euro and Swiss francs along with our layered hedging program helped to mitigate some of the impact in the quarter as many of our products are manufactured in Europe, which helped improve our gross margin rates in the period. However, significant weakening in foreign currency rates in emerging markets and the continued weakness of the Japanese yen, Australian dollar and Canadian dollar, where we have minimal manufacturing negatively impacted our gross margins and operating charge associated with the voluntary recall of the REJUVINATE ABG2 modular hip stem as we resolved some insurance matters in the quarter, which more than offset the additional charge in the period. As I've mentioned previously, the charges we have recorded related to the REJUVENATE and ABG2 recall represent the minimum of the range of probable loss to resolve this manner and the charges may increase or decrease over time as additional facts become available on our assumptions more refined. In the 4th quarter, our organic growth rate was 6.4 percent, including 8.1% growth in unit volumes and mix with price negatively impacting sales by 1.7%.
Acquisitions added 0.6%, while FX had a negative 3.2% impact due to significant weakness in both the Japanese yen and the Australian dollar compared to the same period last year. Full year 2015 constant currency sales growth were 7% and organic growth was 6.1%. Looking at our segments, orthopedics represented 42% of our sales in the quarter and sales of orthopedic products grew 3.3% as reported and 7.1% in constant currency. U. S.
Orthopedic sales grew 9.7% in the quarter. Trauma and Extremities had another excellent quarter in the U. S. With sales increasing 13.6% led by strong growth in foot and ankle, which again grew approximately 20% for both the Q4 and full year. U.
S. Hips and knees continued their strong performance of 6.4% and 9.1% organic growth respectively in the quarter. Knee sales were bolstered by increased adoption of recent titanium 3 d printed products. Our international orthopedic business grew 2.4% in constant currency as sales growth continued to be negatively impacted by weakness in China and Brazil. However, our international knee business grew 5.5% in constant currency in the quarter.
Finally, we sold 31 Mako units in the quarter and 72 units in the full year. Next, our MedSurg segment represented approximately 40% of our total sales and sales of MedSurg products grew 3% as reported and 5.6% in constant currency. These results were led by growth in our instruments and medical business, both of which had strong mid single digit percentage growth in constant currency. Endoscopy also posted mid single digit percentage growth in constant currency in the period on the back of our new camera offering, which was launched in December. All three of these large MedSurg businesses continue to manage pricing decisions effectively with modest price declines of less than 0.5% for the year.
Our final segment, Neurotechnology and Spine, represented 18% of sales and delivered another good quarter. Sales of Neurotechnology and Spine products grew 6.5% as reported and 9.9% in constant currency. Growth in this segment was led by our neurotechnology business, which had double digit growth in the high teens in constant currency in the 4th quarter and drew high teens in the U. S. Spine sales had mid single digit percentage growth in constant currency in the period and had high single digit growth in the U.
S. This marks our 3rd consecutive quarter of strong growth in U. S. Spine. Spine also has a new 3 d printed interbody device launching in 2016, which we believe will be a very exciting product for the market, helping us to continue this positive trend.
And looking at our operational performance, gross margin as a percent of sales on an adjusted basis in the 4th quarter was 67.2% compared to 65 0.8% in the Q4 last year. When compared to the same period last year, the rate was positively impacted by solid operational improvements, product mix and FX rates despite the negative FX impact on earnings per share. Price had a negative impact as pricing was lower by 1.7% in the period. Our gross margin as a percentage of sales was 66.5 percent or 50 basis points higher than last year. Research and development expenses increased by 20 basis points to 6% of sales in the 4th quarter compared to 5.8% in the same period last year.
On an adjusted basis, selling, general and administrative expenses represented 33.7 percent of sales in the 4th quarter compared to 32.4% in the same period year. As expected, these expenses were higher for the year as we increased spending to support the cost structure of our European regional headquarters in Amsterdam and our transatlantic operating model. We are confident in our ability to leverage these expenses in 20 16 as we continue to drive a number of key cost initiatives even as we reinvest some of the savings from the suspension of the medical device tax. Operating margin as a percentage of sales on an adjusted basis were 27.4 percent in the 4th quarter compared to 27.6 percent in the same period last year. The full year adjusted operating margin rate was 24.9%, nearly flat compared to last year.
During the year, we invested in our European regional headquarters and the establishment of our transatlantic operating model, which reduced the stronger operating margins for the year. Other expense in the 4th quarter was $36,000,000 This increase in expense resulted primarily from higher net interest expense due to increased borrowings and foreign currency exchange losses in the Q4. This is generally consistent with the run rate for this category. Our reported tax rate for the Q4 was 14.7 percent, while the adjusted effective tax rate was 16.6 percent
for the
Q4 compared to 22.6% in the same period last year. The 4th quarter effective tax rate benefited from the renewal of the tax extenders, which was contemplated in our guidance. The full year adjusted effective tax rate was 17.3% compared to 22.3% last year as we realized the benefits from our global tax structure in European regional headquarters in Amsterdam. Looking at the balance sheet, we ended the quarter with $4,100,000,000 of cash and marketable securities, approximately 50% of it now held in the U. S.
We also had $4,000,000,000 of debt on the balance sheet at the end of the quarter. From an asset management standpoint, accounts receivable days ended the quarter at 55 relatively unchanged from last year. Days in inventory finished the quarter at 165, which was an increase of 5 days compared to last year. Turning to cash flow. Our cash flow from operations for 2015 were $900,000,000 compared to 1 point But as previously mentioned, we made significant payments earlier this year associated with our REJUVENATE and ABG2 recall settlement of $1,200,000,000 most of which occurred in the Q3.
Approximately 50% of the funding of the REJUVENATE liability is being sourced from OUS cash. We also repatriated a total of $1,800,000,000 in 2015, including approximately $1,100,000,000 in the 4th quarter. Capital expenditures were $270,000,000 in 2015 compared to $233,000,000 last year. Finally, regarding share repurchases in 2015, we repurchased approximately $700,000,000 of our common stock or approximately 7,500,000 shares at an average price of approximately $94.67 We have authorization for another $1,900,000,000 available for repurchase under our current authorization. Based on our strong performance in 2015 and assessment of the current economic and market conditions, we are projecting constant currency and organic sales growth in a range of 5% to 6% for 20 16 and and expect to be at the low end of that range in the Q1 as we are still anticipating impacts of market conditions in the emerging markets, especially China and Brazil.
If foreign currency exchange rates hold near current levels, anticipate net sales will be negatively impacted by approximately 1% for 2016. We also expect continued unfavorable price reductions of 1.5% to 2% consistent with pricing environment experienced in 2015. Due to the suspension of the medtech tax, we will also provide some additional visibility to our projected margin rates for 2016. Both gross margin and operating income margins are projected to be at least 50 basis points higher in 20 16 in total. The benefit from the suspension of the medtech tax will directly benefit our gross profit rate.
However, R and D will run slightly higher in 2016 and our SG and A rate will only show modest improvement for the full year as we expect to reinvest the majority of the benefit we receive into this area, offsetting much of our cost reductions in 2016. As such, our gross margin rate improvements will be the driver of our operating margin rate in 2016. We expect our full year adjusted effective tax rate in 2016 will continue to be approximately 17 $450,000,000 in 2016 as we continue to invest in our operations and IT infrastructure to support future growth. Based on the current foreign exchange rates, we expect 2016 to be negatively impacted by approximately $0.12 to $0.13 for the full year and approximately $0.03 for the Q1. This negative impact is largely driven by the translational component of foreign exchange, which we do not hedge.
The transactional impact of foreign exchange on earnings is being offset somewhat by both natural and real hedges, which we continue to layer into our operations. Finally, our guidance for adjusted net earnings per diluted share in 2016 is $5.50 to $5.70 for the full year and $1.17 to $1.22 for the first quarter. Thanks for your support and we'd be glad to answer any questions that you may have at this time.
Thank you. We'll now begin the question and answer Our first question comes from Bob Hopkins from Bank of America. Please go ahead.
Thanks. Can you
hear me okay?
Hi, Bob.
Great. Hey, good afternoon. So first, Bill, sorry to see you move on, but good luck with the next chapter. So I feel I'd be remiss if I didn't sort of ask a follow-up question on this announcement. And maybe the way to phrase the question, Bill, is and for Kevin and Catherine, you guys have been talking about M and A for some time.
And I'm just curious if this CFO transition suggests any change in strategy or maybe suggested mid or larger deals, kind of less likely until after this transition is complete. Just kind of curious, how this could affect strategy and or the outlook for M and A? And thanks. And again, congrats, Bill, for the decision.
Thanks Bob. Look, I would tell you right now the company is in very good shape. You can see the way we're performing. This is an internal transition with somebody who's inside our company. So this is not like we're signaling any kind of shift in strategy.
I would tell you we've been very consistent on first, then dividends and then share buybacks. So there's absolutely zero change to our operating mode. I'm expecting a very smooth transition. You can see that we have whole quarter of overlap. And Bill is still going to be around in this community and available to help us as needed.
So I would tell you that you should expect more of the same from Stryker and this should be a very seamless change.
All right. Thank you for that. And then as a quick follow-up also, Kevin, from a big picture perspective, I was wondering if you could kind of give us your sense for the outlook for hospital capital spending in 2016? What are you seeing from hospitals? You're expecting any changes?
Just wanted to get a sense for your view on the 2016 outlook for CapEx, especially since you're launching some new products into the market right now?
Thanks, Bob. Look, we see the market as very stable for capital equipment. You can see in the Q4, we had very strong performances on Mako selling capital. That's large capital. We also have a lot of small capital.
Our instruments division did very well in the Q4. So we look at the market as being very stable. We're just embarking upon a launch of our new camera, the 1588 with an endoscopy. They had a nice start in the month of December and their orders look quite healthy going into the year. So we're not seeing really any change, a very stable capital market.
And your next question comes from Michael Weinstein from JPMorgan. Please go ahead.
Thanks for taking the question. Good evening, everybody. And Bill, my sentiments as well. Thanks for all your help and enjoy your time away from Stryker. Let me ask a couple of questions, guys.
So one question is the 5% to 6% constant currency guidance for 2016, obviously you've by and large been running above that. Can you just tell us what you have baked in there for the emerging market performance? Because obviously, you're still assuming a challenging emerging market environment
for the year. Just want to get
some sensitivities around it.
Yes, Mike, in terms of emerging markets, which is in that 7% to 8% of our total sales in China and Brazil are the biggest components, although we've been seeing nice growth in markets outside of that. We've assumed those markets remain challenging for the better part of the year. China as well as Brazil are difficult to predict given the macro issues surrounding them. We do benefit from easier comparisons as we get to the back half of the year, but we assume the overall market there continues to be a bit of a challenge.
Yes, Mike, I would say the emerging markets for us, we had similar performance in the Q4 as we did in the Q3. So we were slightly negative in terms of growth in our emerging markets. China, of course, being the biggest drag. And for Stryker, we have a capital equipment business, especially the endoscopy division that's quite big in China. And so that has a bit more of an impact than the disposables or implants on Stryker.
So we're expecting that to be continue to be difficult and that will be a drag and it's early in the year. So we're setting our guidance from 5 to 6. As you saw last year, we moved our guidance up during the year. If these conditions don't are not as severe, you could expect we would do the same. It doesn't change our outlook on our business.
We feel very good about our business, but it's early in the year. And we know those markets are going to be challenged and we're just baking in some caution around those markets.
Understood. So let me just 2 quick follow ups relative to the guidance. So one, you started to talk about the cost transformation initiative in Greater Seattle and San Francisco. And in the 2016 guidance, you're basically assuming no SG and A leverage and that's part of it you're talking about reinvesting back in the business with the benefit of the MedTech tax helping the gross margin line. So can you just talk a little about where you're going to incrementally invest if there if that will show up in SG and A or will it all show up in R and D?
And then second, the acceleration of the share buyback and acceleration maybe is not the right term, but you bought back more stock than you had been buying back in the Q4. Can you just talk a little about what's in your 2016 guidance for capital deployment?
Yes. So a couple of different questions there. The first one associated with kind of the margin rates and also the SG and A area. We do expect some modest level of improvement still in the broader operating expense category, but the reinvestment is primarily taking place in both areas, probably about maybe 20 basis points or so of an impact on the R and D related side and the remainder kind of in the SG and A area. I'd say that with the cost initiatives that we've got in place that you would have seen obviously better leverage there, but with the reinvestment will slow that down at least this year.
But we should still be showing obviously some very solid gross margin rate improvement and we should be getting good drop through still into the operating income line for that. As it relates to the buybacks, yes, we did jump that to about $700,000,000 in this year. As you can see, our cash has continued to stay very strong. We were able to bring back some additional cash. We have about $2,000,000,000 here in the U.
S. At this point. And as far as our guidance is concerned, you should expect that we commented before that we've got the authorization out there. We expected to complete that over kind of a 2 to 3 year period of time, barring any sizable acquisitions. And hopefully, as Kevin mentioned, acquisitions are absolutely still our 1st and foremost kind of attention within that space and we expect to be very active as we move forward.
But those are all based on timing situations, right? So, but that is still our number one focus.
And our next question comes from Rick Wise from Stifel. Please go ahead.
Hi, Kevin. Hi, everybody. Maybe Kevin starts, my first question would be on the operating margin outlook. Obviously, you're exiting 15% at 27.4%. Maybe just comment, if you would, on your aspirational goals here.
Is it 30%, is it 35% over the next 2 to 4, 3 to 5 years? But just talk about the magnitude and the durability of this seemingly long tailed opportunity.
So Rick, look, we only give guidance for 1 year, right? So we provided you guidance this year, which shows some pretty meaningful leverage on the EPS line coming off a year where we just delivered leverage and if you we didn't have the $0.12 to $0.13 a share of negative FX, we'd be giving EPS in the 10% to 14% range. So that's pretty meaningful leverage on our sales of 5% to 6%. So you should expect us to continue to drive meaningful leverage. That's the goal of the cost program.
We've said before, there's significant opportunities in the 100 of 1,000,000 of dollars. And as we get drive those savings, we'll obviously if there's great opportunities to invest, we'll invest some of those dollars and some of those dollars will fall to the bottom line. So but I don't have a magical number and I think it also depends on as the years progress what types of deals that we do and how that affects our margin profile. So I think each year you'll expect us to give the kind of guidance we're giving you this year, nice robust organic growth and a nice amount of leverage to the bottom line. And I think I'll just leave it at that.
Okay. And Catherine, maybe for you on Mako, can you give us a little more color on your comments? You talked about increased demand for the hip indication. It seemed to me you placed more a few more systems than we expected. Can you talk about the placements and the utilization and maybe where you are in the rollout for new indications and software?
Thank you.
Sure. I think it really is reflective of being completed year 2 of acquisition. So working through the integration and really helping the combined sales forces to optimize their education around the features and benefits of our hip system on the robotic assisted platform and getting out there and really detailing those benefits. It's a nice mix of both existing Stryker customers, but also new accounts that we're able to get into with the robots who are really pleased with the placement as well as having a number of them outside the U. S.
I would really just emphasize 2016 is about really working to make sure we are optimally set up for full commercial launch in 2017 for the total knee. So we are not expecting any real impact from that this year. We have a lot of work to do to optimize the training protocol. We're going to work with key opinion leaders, both on the robotic side as well as KOLs with our triathlon system to make sure we're meshing those observational studies to really fine tune the training protocol. We then have to train our own sales force through the upgrades of the system.
So there's a lot of work to be done to make sure when we go into full commercial launch, we are set to really optimize that and have a presence at the podium. So we'll continue to drive placements with the existing indications for 2016, while doing the necessary groundwork to really ensure we're in a great position in 2017 to take full advantage of the total knee indication.
And our next question comes from David Roman from Goldman Sachs. Please go ahead.
Thank you and good afternoon everybody. I wanted just to start with some of the investment spending that you're committing to through the P and L. Over the past several years, you've been very consistent with investing in your business both SG and A and R and D, which has obviously produced this very nice top line growth rate. But as you look forward, as you continue to invest in the business, do you see
Well Well, I can tell you that I get a chance to travel around to all of our divisions over the course of the year and I've yet to meet an R and D leader that has enough money to spend on new products. So I would say that all the divisions have opportunities. There's clearly some areas that we would focus on a little bit more than others. So you've seen our spine business really start to turn based on focused investments in R and D. We've had 3 great quarters in a row in the U.
S. Still have to take a lot of those products outside the U. S. But I would say that would be an area where organic development and spending is really paying off for us. So you could expect more in that area.
Sports Medicine for us is a business that's growing very fast. It's relatively small within Stryker. That's also an area of interest. Neurotechnology as extremities, I would say I picked those 4 right off the top of my head, but I would tell you we have a long list. And if my other division presidents are listening on the call, I know that they're preparing ideas for me as well.
And we'll obviously look at all the ideas and determine which ones we think can really provide value for us. We're not going just spend for the sake of spending. And a company as big as Stryker is with the decentralized focus, we're seeing that innovation delivers. And I cited one example of 3 d printing where I think we're seeing it to have an impact on 2 different divisions of Stryker, our knee business as well as spine. And we have a huge lineup of other divisions with ideas and prototypes to get into 3 d printed titanium products.
So I would say that those are the sort of the top of mind areas of focus, but all the divisions are lining up and we'll be very selective as we march through that and we'll share more as the year unfolds.
Okay. That's very helpful. And then on the capital spending side, the $4,000,000 to $450,000,000 sort of at the end of the high end of the range, it would be almost doubling from where you were, I think, in 20 14. Could you maybe just help us go into a little bit of detail on where those CapEx dollars are going? How much of that is are sort of the 2016 isolated in nature?
And what the implications of this additional CapEx are to the rest of the business down the road?
Sure. I'd say that there's beyond just supporting the operations and the higher growth level that we've got in the company, there's a couple areas of specific investment. One is on in the ERP transformational area, which is strengthening our global ERPs on a worldwide basis and reducing the numbers that we have. So we're on a more consistent common system there. The second one is actually we're building a brand new state of the art 3 d printing manufacturing facility this year as well too.
So we're spending some dollars I think in some key potential growth areas for us and we want to take advantage of that. This year is a little bit of a blip in comparison to what that normal CapEx would be.
And our next question comes from David Lewis from Morgan Stanley. Please go ahead.
Good afternoon. Just a couple of questions. One, Kevin, just to start up with the orchid market. I wonder if you could just comment on 20 15, if you think about the underlying momentum in the market and your share position, how much relative share you may or may not have taken in 'fifteen? And how those dynamics in your mind compare to the outlook you'd see for 2016, both in terms of how the market is going to perform and how you see share shaking out?
So yes, thanks for the question. Obviously, not everybody is finished reporting yet. So we don't have all the final results for 2015. We feel very good about the performance across our portfolio. Certainly, hips has been an area of strength for us for the past 4 years.
But we're very encouraged by what we're seeing in knees as knees have started to pick up and we've historically treated the last 3, 4 years been in line with the market or maybe slightly below and I think we're going to start to see a bit of over performance there behind innovation and launching new products. So we feel good about our position in those 2. Trauma, of course, as you know has been a standout for us for about 4 years. And we continue to launch new products and we continue to grow very well. So to us, the market seems very stable.
We like our position in each of the categories. If you conclude spine within your definition of orthopedics, I would say that was an area that had been more troubled for us, but we feel we're on a very good path now. So across the portfolio, and I just had a chance to spend time at the sales meetings for Orthopedics and Spine, I could tell you they feel very good about our competitive position in a market that seems very stable. And so I think we'll see more of the same in terms of volume growth and we like our competitive position.
Okay. Thanks, Kevin. And just two quick ones. One, just Catherine, just thinking about Mako for a second, I mean, you're now selling more systems than the Target Mako ever did. And I wonder, are you seeing any pushback on ASPs for the system around $1,000,000 And in light of one of your competitors acquiring another competitor, specifically in robotics, do you expect to see some ASP pressure in 2016 or 2017?
And then Bill, just you sparked my interest on the 3 d printing facility. Is this a facility that will be capable of doing 3 d printed full total knee and hips? Or is this more sort of derivative products to the orthopedic process? Thank you.
Yes. On the capital side, obviously, that's always going to be a conversation. You don't sell $1,000,000 capital easily, but I will tell you we are selling 1,000,000 dollars capital. So those robots are sold, they are not placed. I think what we're doing is really leveraging the ability to offer different models.
We talked about our Flex Financial, so giving customers the ability to outright purchase or lease depending on their needs and I think that's helping. And it's really I think the difference we make a standalone is we have a very large selling organization that over the last 2 years has really come to understand the features and the benefits. And the value proposition has only improved going from a uni then to a hip then to a hip with our hip systems on it and now knowing a total knee will be coming, I think helps in that sales process as well. But we are selling those robots and I don't anticipate that changing in 2016 related to any competition that might be out there.
Yes. And the second part of your is around 3 d printing. So we've launched over the past few years, we've started with part of our knee system to enable cementless knee. So tibial baseplate, we have this past year in the middle of the year launched revision cones with geometry that can only be made with 3 d printing. We have a patella that we've launched that's 3 d printed.
And now we're just about to launch a 3 d printed titanium interbody device for spine. So all of the products we've launched thus far that are 3 d printed are all innovative, new products. In the case of the spine product and the cementless product, it allows for bony in growth because they're porous materials and getting very good feedback from our customers. For the foreseeable future, at least the next 3, 4 years or so, focus is really on innovative new products and not replacing our existing products with 3 d printed products. The pipeline of innovative new geometries that can't be made without 3 d printing is the area of focus.
So it's not about trying to replace our products and drive down costs. Over time, 10 years from now, that could be the case. But in the near to mid term, it's really focused on innovative new products.
And our next question comes from Kristen Stewart from Deutsche Bank. Please go ahead. Hi. Can you guys hear me okay?
Yes, we can. Yes, Kristen.
Okay, perfect. So Bill, I'll reiterate, definitely congratulations on retirement and we definitely will miss you. So just a question more strategically. I was just wondering if you feel good about kind of the 3 main buckets that you have now and whether or not Kevin you feel like there's any need to kind of expand beyond that and get into any other white spaces at this point?
Yes. No, Chris, I'm going to be consistent with what I've been saying the past couple of years is in our strategy is to stay within these three segments. We like our position in these three segments. We want to continue. If you look at all of our acquisitions, they've strengthened each of our businesses that we're currently in.
And every year we do a white space assessment and the white space assessment is not as attractive as staying within our segments. There are a significant number of targets within our segments. I know we only completed 2 deals. It was a little bit quieter year in 2015, but I can tell you the activity level was no different in 2015 with a lot of deals being discussed. And so I would expect us to continue along our current strategy and don't expect us to suddenly jump into a white space.
Okay. And then just with respect to the neurotech area, are there any notable clinical activities coming up trial readouts? Or can you speak to any new product pipelines, or do you think that we should be aware of that could help drive growth?
Well, yes.
Even though obviously it's been growing really well.
Thanks, Kristin. We love this business and I would say our coiling and the ischemic stroke were in great shape and we're growing very well in those two categories. The one area for Stryker that is a slight gap is the flow diverting stent segment. We are selling that outside the U. S, but we don't yet have U.
S. Approval. We have done process of just completing up our trial and we'll be submitting for that, but we're still we still have some time before that gets approved. That's the one area we're not in. So we're driving this terrific growth without being in that one segment in the United States.
So that's an ongoing process. We'll update you more towards the end of this year in terms of when that will come to market.
Our next question comes from Jason Witty from Green Capital. Please go ahead.
Hi, thanks for taking the question. It sounds like the we should view the total knee coming out next year as sort of a transformational product. If I look into this year, can you kind of maybe highlight sort of the products that we should be focused on that will really drive that growth this year?
I would really look at it as across the board very typical striker fashion where it's more singles and doubles whether it's Endo launching their new 1588 camera or Mako continuing to drive indications like hip with the Stryker brands that we talked about or spine with their new products that are coming out 3 d printed. So it's really a story about those incremental innovative new products. Usually no one on its own is a growth driver. It's the totality of that offering that really allows us to sustain that organic growth at the high end of medtech. Clearly, next year, we're set up for some more impactful products when you think about Mako and the total knee and expecting to be on a clear trajectory of taking meaningful market share as we work our way through 2017.
Ischemic is one more of those more transformational opportunities. There's a lot of market development that still needs to take place there around the patient path, referral systems, hospital, intra hospital transfer. So we talked about that being a multi year process, but clearly seeing some very good growth rates, but off of a still small base. But I would really think about this year as a typical Stryker story. You've got a lot of products, a lot of momentum, dedicated sales force with a specialty focus that's really helping to drive that 5% to 6% growth we're targeting.
Okay, very helpful. And just a quick follow-up for Mako. Can you give us a sense of how many of these new placements are to existing accounts and how many of these are de novo? Just kind of
We haven't broken out.
Out of the 31, we haven't broken out. I would tell you though that it is a combination of both existing Stryker customers as well as new customers where we haven't had any type of meaningful presence. So we haven't given it with more granularity than that, but there is a nice mix.
Great. Thank you.
And the next question comes from Matt Miksic from UBS. Please go ahead.
Hello, Matt.
Matt, your line is open.
Sorry about that guys. Thanks for taking our questions. Super job on the numbers it looks like. And I'll pass along my congratulations and farewell to Bill. We will also miss you.
So on Mako, just a couple of maybe broader questions on how you're positioning the platform. Robotics has been kind of a market development project for a while, oftentimes dealing with surgeons and helping them get more comfortable with using the technology, maybe changing the way surgery is done over the long term. But what point does this become or has it already become an opportunity to drive better contracting for you across your implant lines, greater share or utilization, multiline contracting, driven by the merits of the system and the technology? And I have a couple of quick follow ups.
So Matt, I would say, look, we're still in the early stages. We the Stryker hip brands are now just available recently and we haven't launched a total knee yet. So I think that's those are the big applications. And to say that it's impacting contracting yet, I would say it's too early for that. Once this becomes a more mature business, which will take a couple of years, then I think obviously having a system that if the surgeons are having a great experience and they enjoy it and they want to use the products, it really does provide us with great differentiation, which will and differentiation will show up in many different ways, including potentially in contracting.
But we're aways from that yet. We have a lot of work to do in the next couple of years to really gain more broad adoption of the technology.
And another on the same topic here. Catherine, someone asked earlier about hips and what's changing and how you're improving in performance there. Put that in perspective, I remember when Hips came out and when you first acquired the system, it wasn't generally thought to be really where the bang for the buck was with the robot. And I guess what's changing? Is application getting a lot easier?
Is people getting are they proving out the benefits of the hip? I mean what's driving uptake in against what was historically viewed as sort of like a not the greatest application for the robot?
Okay. So I'll take this question. So when I tell you the first iterations of the hip software were a little bit clunky and it requires quite a bit more registration time to register you have to register in the software system. So that's just an extra step that some of the surgeons were a little bit frustrated with. Over time, both prior to our acquisition and subsequent to our acquisition, we've made some enhancements to the software to make it a little bit more user friendly.
That's been one factor for sure. I think the most compelling factor is showing the surgeons on the pre and post x rays that they put that hip exactly where they want to put it. And I think even those surgeons that had some hesitations when they see the pre and post x rays, they're just it's a very compelling visual for them to understand. Before they weren't doing that, they weren't able to get that same type of consistency. And that's starting to resonate with a lot of surgeons.
And now being able to put our implants in addition with easier to use software and to get that kind of outcome, It's like all things that change, right? Change doesn't occur to everybody at the same time. Some people are early adopters. Some people, frankly, will never adopt. They'll just be set in their ways.
But what we're seeing is the middle of the bell curve is starting to shift its mindset. And frankly, the more that robotics is talked about in the community at large, we find that actually a very positive thing because we really believe we have a terrific system and we're obviously continuing to invest in that system going forward.
Our next question comes from Joanne Wuensch from BMO Capital Markets. Please go ahead.
Good evening and thank you for taking the question. I have two questions. The first one has to do with 3 d printing. We came quite aware of that a couple of years ago. Now you're definitely doing a bigger focus on that.
What does it take for a 3 d printed, call it, hip or knee to become more mainstream? Is it manufacturing? Is it clinical data? How should we think about this evolving?
Well, it's a long answer, John. The reason I pause is to get into all the technology on 3 d printing would be would take a long time. The quick summary is that 3 d printing metal is very different than sort of the way you think about 3 d printing plastic, having it on a desk in an office and cranking out 3 d printed products. So metal is much more complicated. It's explosive.
It requires a lot of extra programming. You just don't buy a machine and sort of just off to the races. It's a lot more complicated than that. And so we've spent a lot of time. We've been working on this for many, many years.
And so we have a lot of know how on how to program the machines and optimize the machines. And so there's a lot of factors that go into it to be able to create and different types of machines work better for smaller products than larger products. So it's difficult for me to just summarize in a short time. I just say that it's more complicated than plastics or other things that you read about in the mainstream press. And that's why for us, our focus is much more on innovative new products and not necessarily replacing total systems.
That will be many, many, many years ahead of us.
That's very helpful. As a follow-up, what should we expect of the upcoming AAOS? Thank you.
Yes, Joanna, I think it will be typical to prior years. Clearly, there's going to be a big focus around Mako as we think about uni as well as hip. It's too early in our initial commercial launch activities and to have a big focus on user feedback from total knees, although I'm sure there'll be a lot of surgeon presence around that as they're looking to get educated on the features and benefits. And we'll have a tour of the booth as we've done previously to highlight new products across all the businesses from trauma, foot and ankle, spine, etcetera. And we'll also have an opportunity while we're there just to sit down and meet with management and have an open Q and A forum.
And the next question comes from Raj Denhoy from Jefferies. Please go ahead.
Hi, good afternoon. I wonder if I could ask a question about the CJR or CCGR program that's rolling out. I think you guys have been pretty clear as all the companies have that you don't think it's going to have much impact on pricing and it's all going to be focused on the post acute care, which pretty much mirrors what we're hearing as well. But my question is really around how Stryker interfaces with that model. In your Performance Solutions business, you guys were involved in some of the bundled payments initiatives before.
Is there an opportunity for you guys to perhaps benefit from the CGR program as it rolls out?
Yes. We agree with your comments. We don't think it's going to have a meaningful impact. We have seen in the past with some of the prior programs, it really does drive a focus on post acute and patients that are discharged right to rehab given the high cost there. We do have a small business, our Stryker Performance Solutions that we think can help work with hospitals to help them make them aware of the data so they can have a sense of what best in class is and where some of the cost benefits they can realize whether it's around infection rates, transfusions, etcetera.
So it's not a huge part of our business, but it is one that provides insights and does help them as they think about their overall cost structure. But clearly, we continue to believe based on everything we've seen that it's going to be post acute care. We haven't seen any meaningful change at all in price between those trial areas as it relates to implant pricing. And really the cost savings they can realize focusing on rehab really do dwarf anything else at this point in time.
Right. Maybe just as a follow-up, but if you think about that service offering, if that's the way to describe it, which Performance Solutions certainly does some of, as you think about the next several years, do you envision that service component becoming a bigger part of the business, offering not just implants to hospitals, but perhaps something a bit broader?
Yes, I mean that division is continuing to focus on that. It's not a huge part of our company. I think we see this, the CCGR is a terrific example and opportunity for us to grow that business. But it's not at a scale at which I really want to start highlighting it. I would tell you a year from now, I think we'll have a much better idea of the scope of CCAGR and whether that can become a broader business for us.
So services is not something new to Stryker. A lot of our med surg business provides services to hospitals. We have people in the hospital that our customers pay for to make sure that all their uptime is working on their equipment. So we're not against services at all, but we don't sort of like to get out in front of ourselves. Let's see how this year unfolds and if the business become something that could be scalable, then we'll talk about a lot more.
But right now, it's a small part. I agree with you that CCGR does provide an exciting opportunity for that business, but it's a a very small part of STRUCTRA.
And our next question comes from Larry Biegelsen from Wells Fargo. Please go ahead.
Good afternoon, guys. Thanks for taking the question. Starting I wanted to start with M and A. About a year ago, Kevin, you said you expected to put the balance sheet to work. And I just wanted to confirm that that's still the case.
And I'm asking because obviously been relatively quiet on the acquisition front over the past 6 to 12 months, which is atypical. So is there any reason you haven't the trigger on more deals? And I had one follow-up. Thanks.
Sure. I would tell you just look, deal timing is inherently unpredictable. There is absolutely no change in the statement I made before. I still intend to put the balance sheet to work. The reason we got the extra share buyback approval level was just in case deals don't get over the line or drag on for extended periods of time, we would start to step up the buybacks.
But I you should expect us to continue to be a very active acquirer. But you've seen in the past, right? Sometimes some years there 1 or 2 deals and other years you see many more deals. So our level of activity hasn't changed. I still see many exciting prospects out there.
And so we're staying the course with the existing strategy.
And then earlier you said that in Q1 you would expect to be at the low end of the to 6%, I think constant currency growth rate because of what you're seeing in emerging markets. And so but you expect emerging markets to be relatively weak throughout 2016, I believe. So my question is, does getting the growth rate up above that the low end of the range, does that depend upon an improvement in emerging markets? And if not, how do you get that growth rate up? Thanks for taking the questions.
Yes. I would just comment that if you look at the cadence of quarters last year, we had some difficult comparisons in the Q1 as it related to emerging markets, more of the pressure, particularly in China unfolded as the year went on. We are going to have easier comps in the back half of the year. We tend to have a seasonally stronger second half of the year, particularly as it relates to the Q4. So it's more just reflective of how our quarters tend to play out in some of the year over year comparisons.
And our next question comes from Glenn Novarro from RBC Capital. Please go ahead.
Hi, thanks. Kevin, your U. S. Hip and knee business a strong 4th quarter, up 6% and 9%, respectively. Did you see in the Q4, the U.
S. Orthopedic market accelerate or pick up a bit? Or do you think that was more share capture from Zimmer given the integration between Zimmer and Biomet? And I had a follow-up question on robotics.
Yes. So look, until we see everybody report, it's really difficult for me to say how much of it is the market versus competitive share capture. The knee number we're very encouraged about. We tend to believe our knee improvement is more driven by the new products, the revision cones and more of uptake of our cementless knee offering. So we believe that's more of the issue than let's call it sales force disruptions or any other factors that are occurring at other companies.
It's more about our innovation. When I talk to our field, the sense I'm getting is a very stable market. So it wasn't a few years ago, we saw this big seasonal Q4 lift. We're now seeing a typical Q4. This December was more or less typical.
It's more active, but it was more active a year ago too. So we're not seeing we didn't see anything major in terms from quarter to quarter you do sometimes see slight upticks or downticks, but until they report it's going to be difficult for me to comment. But I think you had a second question.
Yes. Catherine, in your prepared remarks, you talked about with the Mako system podium presentations in 2016. So can you describe what type of presentations? I'm assuming these are clinical trials. So what type of trials and when can we see these trials being presented?
You. Yes. My comments were that we were going to do observational studies in 2016, so really looking at key opinion leaders who have extensive experience with robotics to understand how we can fine tune the training protocol and optimize the rollout. We are also going to be doing observational studies with key opinion leaders who have a lot of familiarity with the triathlon system, so we can mesh those two data sets and really put us in a position to have a presence at the podiums in 2017, not 2016. And so we think combining the full commercial launch and being in a position in 2017 for those initial users, those key opinion leaders to talk about their experience and how they were able to optimize both the robot as well as our triathlon will help drive the adoption.
We're going to continue to collect additional clinical data, but that is going to take our number of years. This is really focused around observational studies to help optimize the training protocol.
And our next question comes from Mike Matson from Needham and Company. Please go ahead.
Hi, thanks for fitting me in. I guess I just wanted to start with the new camera at the endoscopy business. How does this compare to the prior model? Is it more of an incremental improvement? And just in terms of the impact on the growth rate there, do you expect that to be more of a step change or more of a ramp in terms of the growth in endoscopy?
And then I have one follow-up.
Yes. So, no, this is the 1588. So each time we have a new version and we call it the last one is 1488 as you know, now we're calling it 1588, AIM is the name of it. I would say, it's meaningfully better. Better.
Certainly, 1488 had terrific resolution, but we've improved the backlighting and some of the image clarity for certain procedures like ENT that so our product works well in a wide variety of procedures, but there are certain procedures where the lighting just wasn't quite as optimized and we made some nice enhancements there. So across the range of procedures, surgeons are all going to have a delightful experience, whereas in the past, it was not necessarily across every specialty. So that's the first thing. The second thing is we have ICG built into our light source, which we've never had before. So with a press of a button, you can light up the organs.
Just I'm sure you're familiar with ICG with a competitive product out there, but this is not doesn't require extra piece of capital. It's built right into the existing light source, easy for the surgeons to use, which is wonderful. It also includes another product for GYN that lights up parts of the anatomy too. So it's really a safe surgery launch. It enables safe surgery with enhanced visualization.
And we just launched it in December, so we don't have a huge amount of sales yet, but I would say the early clinical feedback has been very positive. I do expect Endoscopy to have a better year in 2016 than they did in 2015.
Okay, thanks. And then just with regard to this big ERP project that you have, what's the execution risk there that something gets some balls get dropped in terms of the inventory levels and things like that and causing an impact on your overall results for the company?
Thanks. Yes. So like with any system implementation, there's always some degree of risk. We're being very thoughtful and careful about how we go about the project. We're staffing, we're putting our best people on it.
They're in a dedicated workspace. And in fact, my former Head of HR, who also has run businesses, is going to be leading the business component of that. And I've appointed a new Head of HR. That sends a terrific signal through the organization of the kind of commitment we're making. It will be a measured launch, so it will take a number of years before it complete.
And we're starting off with our instruments division and we're going to continue we have a steady, steady March planned. We have an IT leader who's partnering with the business leader who has was previous at a previous large medtech company doing exactly this kind of an implementation over the past few years. So we believe it's all about talent, staffing the right people who know our business and we're going to do our best obviously to mitigate the risk. We had a painful experience in Japan a couple of years ago. I can tell you the approach to this project is radically different to the approach we used in that project.
And so we feel we'll be in good shape and it's not a big bang launch. We're going to do division by division, region by region and there'll be a steady cadence. So even if something does start to wobble a little bit, it should have very, very little impact.
Our next question comes from Matt Taylor from Barclays Bank. Please go ahead.
Hey, thanks for taking the question. Can you hear me okay?
Yes, we can hear you.
Great. So I was just wondering if you could follow-up on some of those comments on 3 d printing and just talk about the materiality of the contribution in the quarter and what you expect now that you're going to be investing more in this new plan? How big is it and how material could that be?
Yes. So for the moment, it's these are innovative products that are adding, I would call, an incremental growth. It's not the core growth. The core growth is our big systems, right? Our triathlon, our Accolade, that's where the core amount of our sales comes from.
But this gives an extra boost to and puts a little bit of jump in our sales force step, gives them something new to talk to their customer about. So as an example, revision business lagged our market share lagged our primary business in these by about 5 or 6 market share points. So even in a Stryker friendly account, sometimes they would go to a competitor to do the revision procedure. Now that we have what we consider best in class revision cones, not only do we keep that business, that surgeon stays with Stryker, we gain that sales, but they now have something that they can go talk to a competitive surgeon about. So I would say it's not a huge contributor, but it's an extra shot in the arm.
So with robotics and 3 d printing, we believe we have the lead on both of those areas. And those are things we can talk about that differentiate us from our competition. So again, not even today, robotics is not a huge component of our growth or our actual dollar sales, but we believe they're the ones that are causing that extra piece of growth and a different view of Stryker for the future. Over time, I expect robotics and 3 d printing to take on a more important portion of our overall sales. And they'll be sustainable and sticky if we have something that the competition doesn't have.
Okay, great. And just one question on the transatlantic model. It seems like you're making some progress there. Can you talk about where you are and how much that's helped to improve some of the OUS results and where you think that could go?
Yes. So look Europe has exceeded my expectations. We had a really our international growth doesn't look fantastic. So you don't see it. But Europe had a mid single digit growth year and it improved progressively from the Q1 to the Q4.
So that kind of uptake is frankly ahead of where I expected it to be. It's been masked a little bit because of the sluggishness out of China. So that has dampened our international sales, but it's been a really great success. I'm excited about what I'm seeing across our businesses in Europe. Some of the divisions took off faster than others like trauma, extremities and endoscopy took off really quickly.
And now I'm starting to see some nice uptake in instruments and spine towards the end of the year. So more to come in Europe. We made a number of investments over the course of the year. Those investments are now taking hold and I think you'll start to see Europe become a division that delivers better top line and starts deliver some leverage going forward. We've added Canada.
So those are now directly managed. A division president has direct P and L accountability for Canada, the U. S. And Europe. The other regions, we haven't yet folded into the model, but by eliminating the Group President of International role, we now have them reporting directly to our business group presidents.
So it just increases speed and connectivity from our regions to come straight to a group president. Over time, we'll see whether those countries will roll into this model, but we don't want to run too fast to fully integrated complete global business units, especially with markets like China that are so different or Japan. But we're very pleased with the progress so far. Taking out that position was nothing about cost reduction. That was 100% just to increase speed and connectivity of those countries to our businesses.
And our next question comes from Matt Keeler from Credit Suisse. Please go ahead.
Hey, guys. Thanks for taking the questions. Just two quick ones. First on hips outside the U. S, you highlighted the drag from emerging markets, but your knee growth picked up pretty nicely.
So I'm just wondering if there was a much more pronounced impact from that emerging markets drag on hips relative to knees and if there were any other factors that impacted your hip business outside the U. S?
No, nothing particular. You see this from quarter to quarter. Sometimes you'll see sort of hips jump. In the case of hips, Canada as an example, there was a hip tender that we lost. So that accounted for some of the hip growth.
There's not one sort of overriding factor. It's a sort of a story by story, country by country. And we see this from quarter to quarter. Sometimes you'll see our business is not as big outside the U. S.
So you do see a little bit more volatility in our numbers, whether it's hip, knees, spine. Once those businesses get larger, you should expect that there'll be less volatility.
Great. Thanks. And just lastly, instruments growth was pretty strong in the quarter, but I think you've highlighted that that business is later on in its product cycle. So just wondering if you think the level of growth we saw in the Q4, if that's sustainable going forward? What are some of the sort of the products to watch where you're maybe a little later on in that product cycle?
Yes. So the power tools is the product that we refer to as being late in the cycle, the System 7 power tools, which is probably the biggest single product category within instruments. But instruments has a lot of other products. So they have Neptune, they have they're launching a new signature line of drills. We actually report that as part of the neurotech, but it's run by our instruments division.
But yes, they have the sponge counter as well, patient safety company that we acquired. So these are different kinds of businesses that can drive growth. It's a little less predictable than power tools. So I think we're very excited by how they finish the year. They finished the year very, very strong and we think they'll have a good year.
But being longer in the cycle, sometimes we do see them tailing off a little bit. So but I would expect a year that's similar to the year that they had this year overall.
And our next question comes from Rich Newitter from Leerink Partners. Please go ahead.
Hi, thanks for squeezing me in. Kevin, I was hoping I'd just get some comments on spine. You characterized the market as stable and you're clearly seeing some nice uptick in the growth rates there. You have some new product launches. So my question really is, has there been any change or can you give us your updated thoughts on how you view kind of external versus internal investments in this division for you now that things seem to be on better footing?
Yes. So I'm really excited about what we're doing organically. So we've retooled our R and D organization, some of our marketing organization over the past few years. And this business is hitting its stride and we're launching more and more new products. We're getting into MIS, which was an area that we were softer in before, if you look back 3, 4 years ago.
And so it's great to see the organic growth. Organic growth obviously is much more financially attractive than going out and spending a lot of money on companies. Over time, I do want this to become a bigger division and I think it's you'll likely see a combination of both organic and acquisitions. But it's always better to have a strong organic business. And so I do not feel at all that I need to do an acquisition because of the strength and what we've started to build internally.
But that's something that will likely happen over time.
Okay, thanks. And then just on extremities, again, your foot and
ankle growth, I think you
said it was 20%. That's this business continues to truck along. Any comments on kind of the end markets versus potential share gains that we might have seen in the quarter? And specifically, are you seeing any disruption from recent M and A in the field? Thanks.
Yes. I would just say these are markets that continue to be very healthy, growing double digits. We do believe we're taking market share. We have got a dedicated sales focus there, some great products. I wouldn't call out any disruption that we're seeing in the marketplace.
I think it just continues to be really good execution in a market that has favorable underlying growth dynamics.
And our next question comes from Josh Jennings from Cowen and Company. Please go ahead.
Hi, good evening. Thank you. Kevin, I just wanted to hope you could touch on pricing. I think recently you had some public commentary about some you had some public commentary about some potential moderation in the pricing headwinds that you've historically been experiencing. Any comments in terms of assumptions for pricing headwinds within guidance?
And then any outlook for pricing particularly in Orthopaedics?
Yes. So you saw for the full year, our price did moderate somewhat from the prior year. And there was a lot of concern as we exit if you remember as we were exiting 2014 there was a lot of concern that pricing was going to accelerate in 2015. In fact it hasn't it actually moderated a little bit. But it's modest right?
The moderation is very modest And in our guidance, we suggest that the price will be between 1.5% to 2%. And so I would say it's a stable market. We continue to have price pressure. It's not going away, but we don't see any accelerators to that price pressure. And that's why we feel it's going to be pretty stable going into 2016.
Great. And then just one follow-up on Mako. We haven't heard much over the last year on the Uni Knee product. Any commentary there in terms of how it's contributing to growth in your knee franchise and just overall growth for that product line? Thanks
a lot.
Thanks. Obviously, the uni market, when it's put in the context of overall Stryker, it's a very small part of the overall business. And I would say it's just it's a steady contributor, but there's nothing remarkable to say about it. It's a good business, but it's a very small part of our overall
And the next quote?
I would just say, were you talking Josh specifically about for Mako?
Oh, he got cut off.
So for Mako, it's the first indication and they're continuing to drive uptake for that as well as with hip. And as we get additional indications, I think it helped us it does help drive adoption as some customers were not interested in just the uni, but as we get more indications, they're starting to adopt for that as well as the others.
Yes, but I'm just trying to interpret, sorry that Josh got cut off, just to interpret that the growth to 9% in the U. S, that spike in growth, it really wasn't driven by Mako Unis. That's driven more by the broader knee business.
And your next question comes from Matthew O'Brien from Piper Jaffray. Please go ahead. Good
afternoon. Thanks for taking the questions. Just quickly on Mako again, the number of systems you placed internationally accelerated here in Q4. Was there anything that you could call out as far as maybe a little bit of a tipping point in terms of interest in the robotic system OUS and maybe that could be an even more meaningful contributor here in 2016?
No, it's still the lion's share of the focus and the revenue is coming from the U. S. We did place more systems outside the U. S. And we'll continue to focus on those opportunities, particularly places like Australia and certain other markets.
But the bulk of the revenue stream has been and will likely continue at least near term to be U. S.
Yes. It tends to be a country by country thing. So Australia had a terrific year in robot sales. I think within Europe, we're going to see certain countries are going to adopt Mako much more quickly than other countries. So I think each year you'll sort of you'll see the international volume starting to increase, but it might be Italy this year, it might be the U.
K. Next year, over the next few years. But again, to Catherine's point, the market that's the most important by far is going to be the U. S. Market.
Okay. And then just to follow-up a little bit on Rich's question, a little more broadly on trauma and extremities. I think we saw some acceleration here in Q4 beyond what we've seen over the last several quarters. And I'm just curious if that acceleration was specific to any couple of products or geographies around particularly the U. S.
And if that level of growth is something that you think is sustainable here in 2016?
Well, I think you've seen our trauma business in the U. S. It's been 4 years of really terrific growth. So that to me is sustainable when you're growing at that level. So we're very, very pleased.
We've rounded our portfolio completely. And so that enables us to do complete hospital conversions, something that was impossible at Stryker 5, 6 years ago. Europe really picked up quickly. So as we move to the transatlantic model, I was very encouraged by our trauma success in Europe. We have not been nearly as successful in Europe as we have been in the United States and we do now have the same products which are all approved.
So I think I expect more commercial success in Europe as well as Japan. Now some of those products take a little longer to get approved in Japan. So I think that once those products start to arrive, we'll start to see more of an uptake in Japan as well. But I would say, we're in very good position in that business. We have a very, very strong leadership team and we expect to continue to have success in Trauma Xtrailines.
And our next question comes from Jeff Johnson from Robert Baird. Please go
ahead. Thank you. Good afternoon. And Bill, just want to say best wishes. I was looking back this afternoon.
I think it's been 14 years that you and I have overlapped. So thanks for all the conversations, all the help over that time. And so Kevin, just wanted to ask one question, one follow-up question here just on the phasing or maybe gating of some of the medtech tax savings. Is there going to be any timing differential between when the medtech tax savings start coming in and influencing the cost of goods line versus when you start reinvesting those dollars back into SG and A and R and D? Should those match up pretty evenly on the P and L or just how to think about the gating throughout this year?
I think that that's fair to say, Jeff, and thanks a lot for your comments. I think that on the cost of goods sold category, obviously, that will start right off in the beginning of the year. Our investments as we are targeting right now, as moving again through 2016, we would also expect to be doing that reinvestment pretty much consistently throughout the year. Yes. So
Sorry, it's going to be clean from the beginning of the year from beginning of this year to 2017. It starts immediately. There's no lag effect, which I think had happened prior with the different companies. So for us, it's clean. You'll see it cleanly in the 2 years.
Got it. Thank you.
And your next question comes from Steve Lichtman from Oppenheimer. Please go ahead.
Thanks guys. I actually just have one follow-up on ERP. You talked about the investment on the capital side. Are there any P and L impacts that we should expect over the next couple of years as you start to implement ERP? And when do you anticipate the system being fully in place?
So a couple of different questions again there. So on the ERP side of the equation from an investment perspective, we won't see the first implementations really for about another year and a half or so. And then those will be rolled out over the next few years after that. As far as the cost side of the equation goes, we would not expect that to be a big blip once we get to kind of the stabilized level that we've got kind of this in 2016 here. But moving forward, in fact, if anything, as those systems are implemented, we would expect some of the benefits.
Plus with the CTG initiatives that we've got kicked off, those will continue to roll in at different points throughout different years. We do have multi 100 of 1,000,000 of dollars targeted for that. Keep in mind as well that we have price downs in the $150,000,000 to $200,000,000 range that we need to be working to offset. And then as far as the impacts associated with the investment, again, that should be pretty consistent as we're moving forward beyond 20 16.
Yes. And just to add to that, I would say we do have some expense that will be hitting our P and L, but we're absorbing that within the guidance that we have provided to you. Got it. Thanks. That's all I had.
Thanks, guys.
Hi, guys.
Hi, guys. Just a couple of quick ones for me. The first, I mean, clearly you all are still emphasizing M and A as a key priority here. And I'm just curious if you can touch on that, how or if those conversations have changed tone just with some of the valuation pullbacks specifically that we've seen in recent weeks?
Yes, I would say that that shorter time period doesn't have an impact. And as Kevin articulated, we continue to be focused on M and A. Externally, there's going to be periods where it looks more or less active depending on timing. Internally, the teams have never been busier and there's no change in the strategy and the recent market disruption is what it is. Okay.
And then I guess just to follow-up on an earlier question just around whether or not there's this potential for longer term growth rates to accelerate. And then just pairing that with your earlier comments about Mako and the likelihood that 2016 is more of a setup year for 2017. Is it fair to assume that overall top line growth could modestly accelerate heading into 2017 from 2016 level?
It's always our goal to grow sales at the high end of medtech and certainly we've got some nice opportunities between ischemic and Mako, but they're going to be in the early stages next year. So probably premature to start to push towards higher growth rates than this year, but we feel really good with what we've set up for this year and hopefully can build on that in 2017.
Yes. And I think we're going
to learn a lot.
So I think towards the end of this year, we'll be able to share more of the 2 additional platforms, both Mako and ischemic stroke. Those are the ones that I think can provide, let's call them, change of trajectory and growth for the company. Now whether that happens in 2017 or 2018 or 2019, it's they're new platforms. So it's not easy to predict, but I think we'll learn a lot over the course of this year and certainly be able to share more with you when we provide our guidance in the following year.
We have no further questions at this time. I'll now turn the conference call over to Mr. Kevin Lobo for any closing remarks.
So thank you all for joining our call. Our conference call for the Q1
you, ladies and gentlemen. This concludes today's conference. Thank you for participating and you may now disconnect.