Stryker Corporation (SYK) Earnings Call Transcript & Summary

Hello, and welcome. Thank you for being with us here today. I'm Glenn Boehnlein and we're excited to share with you an overview of our corporate responsibility program at Stryker. Our strategic focus advances both sustainable practices and positive business outcomes. Stryker's corporate responsibility objective is to positively impact people and the planet to create a better, healthier world. Ultimately, our goal is to embrace responsible business practices that drive value for our stakeholders. For example, we bring safe quality innovations to the market for our customers and their patients while growing our business. At our core, we solve problems for patients and caregivers. In fact, we impact the lives of over 130 million patients each year. We invest in a diverse workforce, which translates the highly engaged employees, and we see this investment pay off in the results of our business and consistent financial performance. We also invest in operational efficiency, which helps drive our sustainable business practices while also driving profitability and reducing risk. These ideas and strategic priorities are the foundation of our corporate responsibility strategy, which helps us drive value and outcomes for stakeholders. You'll hear from several of our leaders today, and we'll cover important topics, including our progress on environmental goals, our product safety and quality efforts and our commitment to DE&I. Next, let's hear from our Chair and CEO, Kevin Lobo.

Stryker's corporate strategy is to pursue market-leading growth and category leadership in MedSurg, Orthopaedics and Neurotechnology and Spine. We have 4 pillars to our strategy: customer focus, innovation, globalization and financial performance and 2 foundations: quality first and talent and culture. And throughout the strategy, you can see elements of corporate responsibility, talking about sustainable practices, protecting the planet, diversity, equity and inclusion. So corporate responsibility at Stryker is absolutely embedded in our strategy. And together, driving that strategy, we will not only drive terrific shareholder performance, but will also provide value to our customers, value to our employees and value to the planet. And now I'm going to hand it over to Spencer who's going to talk about our goals and progress related to our 3 pillars of corporate responsibility.

Corporate responsibility is critical to Stryker's future. It's so important to think about the impact we can have on the world as we do business. And it just makes good sense. The way that we think about our customers' needs and tying that to how we do business and driving an improved state for the planet is what drives us each and every day at Stryker. And we've made measurable progress. As a leadership team, we set critical goals that were aligned behind, including providing more external disclosures to make sure that everyone knows what we're doing as it relates to our corporate responsibility initiatives. And more and more of our customers are asking us questions about this and allowing us to go in and help them fulfill their needs and goals as well. And it's really important as we think about our future, aligning that customer needs to the work we're doing as an organization. In our corporate responsibility program, it ladders up into 3 primary pillars: stronger people, a healthier planet and good business. Obviously, this ties us to all different activities in our organization internally and externally. And it all reminds all of our employees the clarity of where we can make meaningful progress. In our healthier planet pillar, we have 3 important goals we've made meaningful progress. First off, we achieved 2024 target to reduce Scope 1 and 2 emissions by 20%, and we did this early. We're really proud of our progress here and look forward to continuing this journey. We're on track to achieve carbon neutrality by 2030, another ambitious goal, and we're well on our way. And finally, the third goal that we've laid out is to actually move all of our facilities to renewable electricity, 100% of our facilities, and we're going to do that by 2027. We're really excited about this, and we're getting after it each and every day. On our good business pillar, there's 2 important goals I'd like to highlight. First off, in 2021, we set a goal to engage 85% of our direct suppliers on ESG performance assessments by 2027. And to date, we have assessed over 47%. So great progress there and some work still out in front of us. Our Board of Directors and Governance and Nominating Committee has oversight of corporate responsibility matters to help hold us all accountable across Stryker. In the stronger people pillar, and we're always excited to talk about our people at Stryker, we've made meaningful progress. We set goals to strengthen the diversity of our workforce, while also advancing a culture of inclusion and belonging and we continue to see progress in this each and every day. And we love talking about innovation at Stryker. It's the lifeblood of what we do, and it starts with customer needs and the environment around those needs as we think about providing better care and fulfilling our mission and together with our customers, we are driven to make health care better. That starts with solving those big problems in health care. As we think about collecting information on individuals, we're now able to use data to provide personalized care. This is really exciting, hopefully, being able to predict what we need for a surgical intervention and a healthier outcome. Finally, I think about safety. How do we provide a safer environment for our caregivers, for our providers and ultimately for the patient. And utilizing technology with data and digitizing our future, we're really excited about what's in store for Stryker and the health care market overall. One of the exciting initiatives we set out a couple of years ago is bringing some of our enabling technologies together under one centralized entity, and we call it DRE, Digital, Robotics and Enabling Technologies. The exciting part about this change is leveraging the common platforms where we have technology blocks that we can leverage across a variety of disease states, for example, some place like robotics, where we can take a market-leading position in hips and knees with the Mako robot and look at other musculoskeletal disease that can utilize this really exciting and unique technology to make those interventions more consistent, predictable and better. I'd like to now turn it over to Viju, who will talk more about our commitments to the environment and our progress in our supply chain.

The really exciting piece is we do have a holistic approach, which absolutely addresses all of the aspects of the value chain in terms of creating and generating a healthier planet, but also an amazing business outcome as well as clinical outcomes. The most direct way that I can relate to is the carbon emissions itself. Obviously, it's a big global concern, and we take it extremely seriously. We have been on this journey for a few years now. We have great momentum. We have the expectation to get carbon neutral across all of our facilities by 2030. We're marching on our way well there. In addition, one of the ways in which we do carbon emission reduction is power purchase agreements and greening the grid, there's really a holistic perspective that we have at Stryker. And one of the avenues that I love to talk about, something that's close to my heart, which is the trifecta. This application, its additive manufacturing or 3D printing has improved clinical outcomes from a patient perspective, has a better cost business value from the elimination of waste perspective, and it has absolutely a better carbon footprint. So those are the kind of solutions we absolutely try to shoot for. That's unique to manufacturing and competency that we have at Stryker. In addition to that, there's plenty of initiatives that are industry agnostic that we really focus on. For example, how do we look to convert more of the grid becoming greener and influence that through virtual power purchase agreements and so on, how do we really look at the energy usage within our footprint and operationally deploy more efficient systems, whether it be a heating and cooling system to how we cool our processes, how we supply energy to our manufacturing processes. So all of those initiatives together has a huge impact on our carbon footprint reduction. We don't stop within the 4 walls of Stryker. We look upstream, we look downstream, we look at transportation modes for our products for delivery all the way through our health care customers. How do we minimize the number of transportation nodes by consolidating shipments. So that's a huge opportunity. So we truly look end to end and look at how do we continue to decrease the carbon footprint while also looking at everything from clinical outcomes to better business value of each of those solutions we offer. I'm so excited to share another aspect of manufacturing. I raved about additive manufacturing, it's a cool technology, but think about reprocessing, using the same medical device, multiple iterations and that really dramatically reduces the carbon footprint through packaging reductions on the manufacturing content but also better business value to our health care customers. So we have a whole business unit, Stryker Sustainability Solutions and that's what drives them. How do I get more devices available to our health care providers through a reprocessing loop as opposed to a fresh manufacturing process. That's a huge carbon limiter. And when I think about safety, it's not a priority. It's a value and there's a big distinction between the 2. Priorities change, values not as much. Our employee safety is so critical to our sense of who we are, not only as a company itself but as a community of team members. So from an employee safety perspective, I'm well aware of the fact that we have manufacturing centers, distribution centers and so on. We take this extremely seriously. We look at process analysis from a health and safety perspective. We look at PFMEAs or failure modes and effect analysis, which is proactively looking at all the risk factors and proactively mitigating those risk factors to the best that's humanly possible. This is a continuous improvement mindset. There's a tremendous amount of daily rigor that happens across our factories in terms of team members on the plan for doing the audits, looking at what may be unsafe conditions in their environment and proactively flagging them. And so this becomes a cultural aspect that's self-regulated, self-instilled and self-propagated, right? So that's a huge element of safety culture that is core to who we are at Stryker. A safe and reliable supply chain is critical for us to deliver best-in-class products dependably and profitably. For Stryker, operating as a good business, Delaware's 2 critical outcomes: product safety and quality and supply chain resiliency. So my colleague, Jody Powell is going to get more into product safety and quality, and let me share some thoughts on supply chain resiliency. It's critical that we maintain a safe, reliable supply chain network and source the highest-quality materials. We go to great lengths to achieve this through a variety of means, supplier code of conduct, supplier diversity programs, supplier due diligence assessments, quality audits and our commitment to practices that safeguard human rights. These processes and mechanisms we have in place give us the confidence we need in our suppliers, in our products, in the safety and quality of our products and devices that we provide to our customers and patients. And now let's turn things over to Jody Powell, who is going to talk to us more about product safety and quality.

At Stryker, product safety and quality efforts are embedded into every step along our end-to-end process. We are driven to make health care better. And in our business, product safety and quality is critical to advancing that goal. We are focused on embedding responsibility, safety and accountability into our end-to-end processes. So let's start with research phase. We collect feedback on current generation products, and we use that feedback to inform and enhance the development of new technologies. We move from research into product design phase where we prioritize a comprehensive approach to quality. This includes rigorous risk analysis and design validation. And this ensures that our products meet the highest global quality benchmarks. As we move into clinical trials, we keep quality at the forefront. We design our trials with the utmost care following rigorous protocols and enlisting the participation of top-tier medical professionals. Our focus here is simple. It's on generating robust data that ensures the safety and efficacy of our products while also meeting or exceeding regulatory requirements. We are really focused on quality in our process development. Let's talk about our suppliers. We hold them to the highest standards, subjecting them to rigorous certification processes and on-site audits. But this really ensures that their parts and materials meet our stringent quality requirements. We also prioritize quality within our own Stryker internal manufacturing processes. We validate our processes through rigorous testing and ongoing evaluation, and this really ensures consistent and high-quality outcomes every time. We are focused on continuous improvement, and it's embedded in everything we do. We value the feedback of our customers, and we regularly engage with both health care professionals and patients to gain insights into their experiences, and this helps us identify opportunities for improvement. We have lots of processes for these types of improvements like complaint handling, nonconformances and corrective and preventive action processes or CAPA. These processes help us investigate these opportunities and implement solutions. At Stryker, we understand that our success depends on the satisfaction of our customers, and we remain fully committed to delivering on our promise of quality and excellence in all that we do. Now I'll turn things over to Katy Fink, who will be talking about our strong culture and strong workforce.

One of our core values at Stryker is people. And we have made efforts to drive positive outcomes for people both inside and outside of our 4 walls. At Stryker, we are made up of more than 50,000 employees worldwide. And we have the opportunity to impact more than 130 million patients annually. People are a really important part of our business and a cornerstone of our culture. When we at Stryker embrace DE&I and spend time focusing on people development and team engagement, it elevates the employee experience. And it helps us improve talent attraction, acquisition, retention and growth. We're proud of the quality of our team and their diverse backgrounds and experiences. Today, 50% of our Board identifies as racially or ethnically diverse and 40% identify as female. Among our senior leadership team, 38% identify as racially or ethnically diverse and 25% identify as female. And when you think about our broad global workforce, women make up over 37% and we are committed to continuing to grow our diversity. Part of this is ensuring that we interview diverse candidates. And today, over 70% of our interview slates include diverse candidates. With a strong welcoming developmental culture, we can continue to attract, retain and grow the best employee base in the industry. At Stryker, we have a strong network of 9 employee resource groups, covering a broad array of demographics. And we work with these employee resource groups to promote a culture of belonging and to advance our diversity, equity and inclusion goals. It is important to us that all of our employees feel seen, valued and heard so that they can fully contribute and thrive in their careers and deliver on our Stryker mission. We are focused on making investments in our people and their career development. We invest in understanding people's individual unique strengths and helping them leverage these strengths to grow in their careers and meet their career aspirations. We set clear expectations for performance and spend time providing coaching and feedback and mentoring so our teams can be successful. Each of our employees works with their manager to build an individual development plan. And these plans include on-the-job training, coaching and classes to help them learn and grow. We have a unique purpose-driven culture at Stryker, where we keep our patients and customers at the heart of our decision-making. We care deeply for each other and celebrate our diverse strengths and collaborate to deliver on our mission. Now let's hear from Andy Pierce, who will share some final thoughts.

As you've seen, we're proud of the progress that we've made, and we're committed to continuing our journey. Ultimately, we want to make a positive impact on our employees and health care all around the globe. To that end, I'll also highlight that we've made strides to promote access in health care through things like tailored solutions for regional needs and partnerships with nonprofits such as Operation Smile, Project Care and more. Before we take some questions, I'd like to summarize what we've heard today. To begin with, our corporate strategy and responsibility initiatives are complementary and support the goal of driving value for our stakeholders. We made progress on these commitments and remain dedicated to doing more. These goals are measurable, tracked by leadership and increasingly disclosed externally. We are also optimizing our supply chain to deliver best-in-class products. Our deep commitment to product safety and quality is unwavering. We deeply value and appreciate the people that make Stryker who we are, and we support an inclusive and engaging environment. Next, we'll take a few questions. Eileen Buckley, who leads our corporate responsibility program will guide us through.

Our first question comes from Christian Scherrer with LGT Capital Partners, and it is for VJ. Viju, our first question from Christian is product and patient safety are of utmost importance for a health care company. How has your quality management developed in recent years to ensure products and patient safety? What specific actions have you taken to achieve this goal? Are you able to share any kind of key performance indicators or KPIs that demonstrate that Stryker's actions have already paid off?