Stryker Corporation (SYK) Q3 2026 Earnings Report, Transcript and Summary

Welcome to the Third Quarter 2026 Stryker Earnings Call. My name is Leila, and I'll be your conference operator for today's call. [Operator Instructions] This conference call is being recorded for replay purposes. Before we begin, I would like to remind you that the 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 comparable GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8-K filed today with the SEC. I will now turn the call over to Mr. Kevin Lobo, Chair and Chief Executive Officer. You may proceed, sir.

Welcome to Stryker's third quarter earnings call. Joining me today are Preston Wells, CFO; and Nick Mead, Vice President of Investor Relations. Before I begin, I'd like to congratulate Spencer Stiles on his appointment as Stryker's next CEO. Spencer has spent nearly 3 decades at Stryker, helping shape our strategy, strengthen our culture and drive our growth. You will have additional opportunities to hear more from him at various investor events over the next few months, and I am confident we will come away with an even greater appreciation of his capabilities to lead Stryker into the future. For today's call, I'll provide an overview of our performance. Nick will then provide a brief M&A update, followed by Preston with additional details on financial results and guidance. We will then open the call to Q&A. Turning to our third quarter performance. Organic sales growth for the quarter was 7.7% with 9.1% growth in MedSurg and Neurotechnology and 5.9% growth in Orthopaedics. Our Endoscopy and Ortho Tech divisions delivered double-digit performances and Medical also delivered near double-digit growth. While we delivered solid growth in several businesses, our overall results fell short of our expectations. As Preston mentioned during the investor conference in September, we are facing challenges with our Hip and Knee and Peripheral Vascular businesses. Beginning with Hips and Knees, it is now clear that there is a market slowdown. In the U.S., we are seeing slower procedural growth amid affordability concerns from higher insurance premiums and deductibles. We are also observing increased pre-authorization denials, creating additional friction and delaying patient access to treatment. Europe and the Middle East have also remained soft amid regional disruption, strike-related delays and government funding decisions. In addition to the softer market, we have not been winning at our historical rate. 2026 has been an unusual year, marked by the cyber incident in the first quarter and an SAP implementation within our Orthopaedics businesses in July. This is the last of our businesses to go on to SAP. And while the system is functioning well, it has created a distraction for our teams and delayed our visibility of market conditions. Although Mako sales have been strong again this year, we are behind our expectations on new product sales from Mako RPS and Triathlon Gold. The feedback on these innovations is very positive, but the cyber incident and SAP implementation have impacted our commercial execution. We are taking actions to improve competitive conversions and new product adoption. Finally, as a leader in power tools, we are excited about bringing a power hip impaction solution to the market next year, addressing an important product gap in our hip portfolio. We remain confident in the long-term attractiveness of the large joint reconstruction market, supported by favorable demographics and expanded access through new sites of care such as ASCs. Next, I'd like to give an update on our Vascular business, which reflects a sequential improvement from last quarter. The third quarter included onetime revenue from our Peripheral Vascular joint venture in China, as a result of achieving a regulatory approval milestone in September. This benefit helped offset the impact of lost revenue from the ongoing supply disruption that we discussed during our last earnings call. Our teams made meaningful progress restoring supply throughout the quarter, and we now expect inventory levels and product availability to continue normalizing through the end of the year. While this has been a challenging period, we remain convicted in the outlook for Peripheral Vascular as a growth business accretive to Stryker. Looking ahead to 2027, we expect to begin commercializing AVS' IVL platform and also look forward to important data from our PEERLESS II study of FlowTriever. We are excited about our recently announced strategic investment in CMR Surgical, which Nick will cover in his section. Our updated organic sales guidance anticipates a similar overall organic growth rate for the company in Q4 as we achieved in Q3. This assumes a continuation of the procedure environment we observed this quarter as well as continued strong capital demand where we continue to maintain an elevated order book. Meanwhile, our successful efforts on margin expansion are limiting the impact of our sales shortfall on adjusted EPS, and we continue to generate strong cash flows. As this is the last of 57 earnings calls as CEO, I would have preferred to deliver better news, but we've demonstrated before that our business is resilient, our foundation and culture are strong, and we remain confident in our ability to deliver on our long-range financial commitments. I will now turn the call over to Nick.

Thank you, Kevin. My comments today will focus on M&A and will highlight 2 recent transactions. As announced earlier this week, we have completed our acquisition of ZuriMED, which expands the support we can provide to specialists across sports medicine and arthroplasty. ZuriMED's differentiated fiber locker technology is designed to increase biomechanical strength in rotator cuff repair and provides a broader platform for orthopedic soft tissue augmentation. Next, we recently announced an investment in CMR Surgical, an agreement to act as the exclusive U.S. sales agent for the Versius platform. Soft tissue robotics is an attractive adjacency that is a natural extension of Stryker's strength in endoscopy, visualization and enabling technologies. Versius has been used in more than 50,000 procedures globally and a scalable design and support broader adoption of robotic-assisted surgery. With its new Versius Plus system, approved indications, technology and growing global clinical experience, we believe now is the right time to partner with CMR and begin scaling the U.S. market through a thoughtful and disciplined approach. Together, these transactions reflect our continued focus on investing in opportunities that support durable long-term growth and value creation. I'll now turn the call over to Preston to further discuss our third quarter financial performance.

Thanks, Nick. Detailed financial information is included in today's press release. I'll focus on our third quarter financial performance, the key drivers of our results and our updated outlook for the remainder of the year. Organic sales grew 7.7% in the quarter against strong prior year comparable. Pricing contributed 0.1% to growth, while foreign currency had no impact on sales. The quarter had the same number of selling days as the prior year quarter. Adjusted earnings per share were $3.52, up 10.3% from the same quarter last year, driven by gross margin expansion supported by operational efficiencies, along with disciplined expense management. Turning to segment performance. MedSurg and Neurotechnology organic sales grew 9.1% with growth of 9.6% in the U.S. and 7.2% internationally. Instruments U.S. organic sales grew 4.8% against a strong 15.3% prior year comparable with double-digit growth in our Interventional Spine and Surgical Technologies businesses. This performance was offset by softer performance in our neurosurgical business due to the deferral of capital purchases ahead of the upcoming launch of our Sonopet 3 ultrasonic aspiration platform, which received FDA 510(k) clearance earlier this month. Endoscopy U.S. organic sales grew 13%, supported by continued robust demand for operating room infrastructure and renovations and strong performance in Sports Medicine, where double-digit growth continues to be driven by its expanded range of shoulder implant products. Medical U.S. organic sales increased 10%, including double-digit performances from our Sage and Smart Care businesses, while capital demand remains elevated across our portfolio. Vascular U.S. organic sales grew 13%, primarily reflecting the drivers that Kevin discussed earlier. Internationally, MedSurg and Neurotechnology organic sales growth of 7.2% included broad strength across Endoscopy, Medical and Instruments. Geographically, growth was led by robust performances in Australia, Germany, Canada and India. Orthopaedics organic sales grew 5.9% with growth of 6.4% in the U.S. and 4.4% internationally. U.S. Knees organic sales grew 1.3%, while U.S. Hips organic sales declined 0.6% against strong prior year comparables. As Kevin noted, we remain focused on strengthening our commercial execution behind our enabling technology platforms and new products to restore momentum and drive share gains. U.S. Trauma and Extremities organic sales grew 4.5% against a strong 13.2% prior year comparable. Current year growth reflected continued strong performance in upper extremities, supported by continued momentum across our differentiated portfolio, including early success of Mako Shoulder on Mako 4. We are expecting strong growth for Trauma and Extremities in the fourth quarter. U.S. Ortho Tech organic sales increased 18%, supported by continued strength in Mako sales and robust demand for orthopedic power tools. Internationally, Orthopaedics organic sales grew 4.4%, supported by Knees, Ortho Tech and Trauma and Extremities and was led regionally by Canada, Japan, Australia, Germany and India. Turning to margins and other income statement items. Adjusted gross margin was 65.4%, up 40 basis points from the third quarter of 2025. The improvement reflected a net tariff benefit and benefits from operational efficiencies. Adjusted operating margin was 26.2% of sales, up 60 basis points from the third quarter of 2025, reflecting the gross margin improvement and continued expense discipline. Adjusted other income and expense was $91 million, down $25 million from the same quarter last year, reflecting lower debt levels. We now expect adjusted other income and expense to be approximately $400 million for the full year. The third quarter had an adjusted effective tax rate of 16%, and we now expect our full year effective tax rate to be in the range of 15.5% to 16%. Turning to cash and capital allocation. We ended the third quarter with approximately $3.3 billion of cash and cash equivalents and year-to-date cash from operations of $3.3 billion, an increase of approximately 14% compared to the prior year. During the quarter, we repurchased $1 billion of shares under our previously existing share repurchase program. Additionally, we received Board authorization for another $3 billion towards future share repurchases, which provides us additional flexibility while preserving our capacity to invest in strategic M&A growth opportunities. Based on our year-to-date results, we are revising our full year guidance to reflect softer hip and knee procedure trends, lingering supply constraints in peripheral vascular and mitigation of operational execution risk related to capital equipment sales. We now expect full year organic net sales growth of 6.5% to 7% and adjusted net earnings per share of $14.80 to $14.90. Our revised adjusted earnings per share outlook reflects continued expense discipline and gross margin expansion. Looking ahead, we remain confident in the long-term trajectory of our business. Our diversified portfolio, leading positions in attractive markets, innovation pipeline and expanding Mako ecosystem provide a strong foundation for sustainable growth. As we plan for 2027, our priorities remain focused on category leadership, advancing innovation and driving operational excellence to deliver market-leading sales growth while continuing to expand margins and grow earnings. We are continuing to assess market conditions, procedural volume trends and the broader macroeconomic environment as we finalize forecast for 2027. While we will not provide formal guidance until early next year, we do expect to deliver growth at the high end of our markets. With that, I will now open the call for Q&A.

[Operator Instructions] Our first question will come from Robbie Marcus with JPMorgan.

Two for me. First, Kevin, clearly disappointing to hear about the ortho market. Where do you think market growth is now? Anything the industry could do to help stem the decline? Is it extremities as well as hips and knees? And then I have a follow-up.

Thanks, Robbie. What we saw was really a slowdown in the hip and knee portion of the market, not really extremities. Our extremities business, especially upper extremities, continues to be very high growth. So we're not seeing much of an impact there. It's really the hip and knee market where we're seeing the slowdown. It's hard to estimate exactly, but I would say market growth is kind of in the 2.5% range this year. That's what we think, which is definitely a step down from where it has been in the last 5, 6 years. And as you know, it took us a while to figure this out. There's a lot of noise with our cyber event, noise with some of the things going on competitively and then our SAP implementation, which really delayed a lot of order entry. So we really started to figure this out kind of in early September when Preston made his remarks at the investor conference. But this has happened before in my tenure, earlier in my tenure where we've had kind of a year like this and things have turned. So we'll have to monitor this closely. And certainly, it was a surprise for us, and that is reflected in our guidance.

I appreciate you're not guiding for 2027 at this point. There's a lot of moving pieces here as we think about some of the shifting market dynamics. Where do you think Stryker's weighted average end market growth is as we head into year-end? And any puts and takes we should be considering with respect to down margins? I know this is a pretty healthy margin business in ortho. How we should think about that down the P&L?

Yes, Robbie, so in terms of the weighted average market growth, I mean we said a year ago at our investor conference that we believe we're about 6% is what we thought we were. Now obviously, if you take into account what's happening across the joint replacement and the hip and knee market, that's probably taken a little bit of a tick down from there. So we're continuing to look at and understand kind of where that nets out. So I think if you have those couple of pieces, you can see we're probably a little bit of a step down from where we said a year ago in terms of our overall growth rate. And as I mentioned in my remarks, our goal will be as we start on 2027 is that we will perform at the high end of those markets as we go into there. Looking at the margins, our expectation around margins is that we want to continue to deliver what we committed to a year ago as well. We feel like we're putting the right plans in place from an operational excellence standpoint. We're really getting after our manufacturing element and gross margins from that standpoint as well as just looking at other efficiencies up and down the P&L. So you're right, the joint replacement market is certainly a more profitable gross margin business. But overall, we feel like we're putting the right pieces in place to continue to try to drive our margin improvement year-over-year.

Our next question will come from Larry Biegelsen with Wells Fargo.

So Kevin, given this is your last earnings call, congratulations on creating a lot of shareholder value at Stryker and Spencer, congratulations on your new role. I wanted to start with the CMR investment actually. Why is CMR the right partner for you? How will you and CMR compete against the big incumbent? And if you do decide to acquire it, how will you absorb the high cost of developing and marketing a competitive soft tissue robot? And then I have one follow-up.

Yes. Thanks, Larry. Look, the soft tissue robotic market is very appealing. As you know, I've been talking about it for years. We've looked at every robot around the world and had multiple looks at these robots. When Versius Plus came along, the upgraded version of Versius, we got a chance to see something that we felt very excited about. We feel it is the best robot on the market to be able to succeed in multiple sites of care. The modular nature makes it great for the ambulatory surgery center as well as working well in hospitals. And frankly, robotic penetration is very low in general surgery. So we look at winning as being able to convert open surgery and convert laparoscopic surgery to robotic regardless of competing with the incumbent. There's plenty of room for 2 players in the market. But this will work in hospitals. This will work very well for high-volume procedures like colectomies and appendectomies and hernias. And so it can be a very high-volume, simple-to-use small platform robot that's highly, highly functional. And to your question about risk, one of the reasons we're going about it in this manner is we want to derisk this and have our people do the commercialization in the U.S. as an investor, but not a full owner. Our hope and our plan is that we will eventually purchase this. We're not going to get into details about when that would be, but that is our plan. This is our bet in the soft tissue robotic place. We're putting a lot of resources on this. And that is our expectation that we will be able to take out the asset and be able to drive value for Stryker. We've done this before with Mako, and we had the challenges of developing that. This is further along, frankly, in its journey than Mako was when we acquired Mako. And again, we're very excited. It's a very high-growth segment of med tech, and we believe this is going to be a winning solution that we are hopeful to acquire in the not-too-distant future.

That's helpful. And Kevin, it's been a while since the last new product super cycle. You talked about the recent Sonopet clearance. You have the hip impactor next year and the PEERLESS II data. What other products or growth drivers would you highlight for next year?

Well, we have the next version of Neptune, which is our big waste management platform within instruments that's coming in the first half of next year, but that's going to be a very exciting launch. We got the ABS product, as you know, that we're expecting FDA approval towards the end of this year. That will be a shot in the arm for our Peripheral Vascular business. And we have -- in the not-too-distant future, we're not going to give you dates. We have System 10 coming for power tools. We have 1888 coming as well for endoscopy. And so we're going to continue to be launching products on a pretty sustained basis across -- and I'm not even getting into all the smaller products that we have. But obviously, we've acquired a great platform for sports medicine with ZuriMED that will plug right into our existing shoulder businesses. And so there are a bunch of other products, which we'll get into later on other calls. But major platforms, Neptune major platform, Sonopet, major platform, 1888 coming, System 10 coming. So we have a lot. And don't forget, Mako RPS is just getting started. Triathlon Gold is just getting started. The medial stabilized insert is doing very well. And so -- but the power impactor is very important in hips for us, that is a really important gap to be able to do competitive conversions, having that power impactor is going to be very important for us in the hip business.

Our next question will come from Joanne Wuensch with Citi.

And congratulations to you both. I do have a memory of ebbs and flows in the orthopaedics market and the hip and knee market. But generally, could you remind what brought us out the last time? And what can be learned from that to think about bringing this out this time?

Well, in the past, sometimes it's been tied to economic activity. So when you see economic pressures, people feeling strained financially. I mean, there are patients that today are having trouble being able to make their deductible because the deductibles are higher and to be able to fund their deductible, they're actually living with pain a little bit longer than they would like to. So as sort of economic conditions tend to improve for the, let's call it, average person in the market, then you start to see the demand pick up. And frankly, these diseases are degenerative. So you can delay these for a while, but the pain reaches a point where you can't sleep at night. And so we see this as not a market that's going to go away. It's just there's this temporary delay that's happening right now, and the market will come back. It's hard to predict exactly when. But it has historically tied more to sort of economic cycles, if you go back, Joanne. I think that's the correlation you'll probably notice.

Helpful. And I think just to pick up from a previous question, to say you grow at the high end of where your market growth is, we're all going to be updating our models and talking about lots of fun stuff. Can you give us some parameters around that to give us some footing as we think about next year?

Yes, Joanne, I would just point you back to what we said a year ago again in terms of what we think our WAMGR is across all of our businesses. I mean we're not going to obviously go detail business by business. But if we look at just that overall WAMGR and then think about this new kind of reality that we're living within the hip and knee market, and that probably takes a little bit of a tick down. And then again, our expectation is that we're going to grow faster than what that looks like.

Your next question will come from Ryan Zimmerman with U.S. Bancorp BTIG.

Kevin, 57 quarters is a nice run. Congratulations. On the fourth quarter, I think if you look at the implied math, it shakes out to around 7.9% organic, roughly in line with kind of what you guys saw this quarter. Preston, you did highlight the areas that you think are going to be weak, orthopaedics, peripheral vascular, et cetera. Maybe help us think about kind of what's accretive in the implied organic growth for fourth quarter, where you're seeing momentum, where you're seeing strength? It sounds like extremities is holding up nicely in some of the other MedSurg businesses as well. But just help us offset some of that weakness or where you see that could be offset.

Absolutely. So I mean, again, we expect that, like I said, I think that implied number is pretty good. I think we'll be looking at areas like trauma and extremities, as you mentioned. We expect that to have a very strong quarter, as I mentioned in my prepared remarks. The other areas that I would look at medical will have a really good quarter. So we expect that to perform well. Instruments is another area that we would expect to have strong performances as well. And then I think the others, again, it's just a matter of keeping par with some of what we've done today. As Kevin mentioned, around peripheral vascular, while we still see that being pressured, it should be a little bit better underlying in terms of where we expect that to perform also. So I think we have a few areas that we'll certainly be leaning on as we come into the fourth quarter, and we'll continue to work on the execution in other areas that Kevin mentioned as well, even in some of those softer spaces.

And maybe turning to capital. Thank you Preston for that. And maybe just turning to capital for a minute. I mean, you've talked about the strength of the order book. But at the same time, it's kind of balanced by some of your other comments around capital and -- and so if we could step back and give us your view of capital in the market, maybe what you're seeing. There's been a lot of chatter about 340B and the impact to hospitals. And so I would love to understand kind of where you're seeing maybe strong capital demand at higher price points, maybe versus lower price points, et cetera, but appreciate those thoughts.

Ryan, this is Nick. I'll take that from a capital perspective. So really, there's 2 components there. There's the demand side of the capital equation and then there's us executing on the demand. From a demand perspective, the order book remains strong and elevated. And of course, there's nuances by business. But by and large, the capital environment remains healthy. What we're focused on is continuing to execute on that demand from a capacity perspective, and we're laser-focused to ensure that we have plans in place to deliver on all those businesses that Preston just mentioned in terms of together in the full year.

Your next question will come from the line of Travis Steed with Bank of America.

Spencer, congrats on the CEO job. Kevin, when you think about calling out market slowdown versus the winning rate, what data points is helping kind of build out what's the market slowdown versus the win rate? It seems like, at least to me, from where I sit, maybe things got a little worse later in September versus kind of what was being messaged at the September conference. So I don't know if things kind of worsened over the course of September for you as well.

Yes. Look, I wouldn't say things worsened in September. We only gained visibility to the quarter kind of in the September time frame because there was huge delays in order entry given the change to SAP. So we only recognized it later in the quarter, but it wasn't just something that fell off in the month of September. And the other thing I'd say is if you look at our sales, we don't do bulk sales within our hip and knee business. And so when you see our numbers, they tend to be pretty reflective of what's happening in the market because we don't have that exaggeration of bulk sales. And it's going to be a combination. The market is definitely slow. We know we're not losing major bits of business to the competition. So that tells us that it's mostly market related, but we have been gaining share at a higher rate very consistently for the past 5, 6 years. And our teams were distracted. They clearly weren't focused as much on this. And so that's why we think the market growth definitely declined, but we weren't taking share the way we had been taking share in the past.

Okay. That's helpful. And how does the cyber impact in '26 impact 2027? Is it an easy comp? Is there an ability to catch up in '27? And I just want to make sure, it sounds like 6% is kind of the floor for total company growth next year. I just want to make sure I heard that correctly.

Yes. So let me answer your cyber question. So we haven't gone through yet all the different quarterly splits, et cetera, for next year's planning process. But certainly, as you look at cyber, it will be something that we'll have to talk about. We'll anniversary clearly in the first quarter. But then we'll also anniversary bits of the recovery throughout the year. So we're going to have to really talk through as we go through each quarter kind of the impacts as we can kind of detail them out. But the reality is for much of the cyber incident, that's been made back up just at different points in time. And I think when we look at our performance in '27 versus '26, it's really going to be a matter of looking at kind of overall how we're performing versus the market and any market changes that are happening from '26 to '27. In terms of the floor, we're not setting guidance right now. So we're just giving a bit of an indicator of how we're starting to think about '27.

Yes. I think the takeaway is the market slowed down in drug replacement. We've had this challenge with SAP that we believe will be through. It affected joint replacement, also affected our core trauma business pretty significantly. We think that we'll be through that. And the underlying fundamentals of our business in every other area are strong. Capital demand is very strong, and we have a pretty good innovation cycle. So it's -- the company, despite this quarter's takedown on the guide, the fundamentals are still very, very strong, looking ahead.

Your next question will come from Matthew O'Brien with Piper Sandler.

Kevin, it's been an absolute pleasure watching you grow this business. I guess I'm still a little hung up on the hip and knee commentary about Q3 here because if I look at your Ortho Tech number, that was really good. It still seems like, generally speaking, the macro environment is really healthy. I actually talked to a CDMO yesterday, they said things are pretty steady. So I'm trying to reconcile the slowdown versus all these other data points that look like they're still fairly positive. And what I'm really kind of getting at is it feels like this could be a very short-term blip and that the recovery could be very quick. Is that fair? Are there certain parts of the market? I don't know if it's private pay patients versus Medicare patients or anything else like that you can point to that says this is the one area that's really slowing down and that we could see a snapback in that area going forward?

Look, I'm not going to be -- I don't have a crystal ball. So it's really going to be difficult to predict if there will be a snapback. There have been confounding data points all year on the market. I mean one of the big hospital chains announced their results earlier this week and talked about a significant slowdown in hips and knees, and they're a very large operator. So that's a data point. Then there's other data points that say it's not as bad. So I think your point is the most accurate point is things come back, and it's hard to predict when they come back. You might be right if there could be a snapback, but we're not going to count on that as we give our guide. We're assuming it stays where it is right now, the market stays where it is. We have seen times in the past where it's come back pretty quickly. We've seen other times where it's taken a little longer. And I really don't have a great feel for when this will return. Okay.

And then just quickly on the Vascular business. It did look like it popped back up here a little bit, which is great to see. Can you just talk about kind of the state of the Vascular business and then your IVL plans as we go into '27?

Yes. Look, the state of the business is we have a very stable and high-performing sales organization, which was last year's challenge. If you recall, we had a lot of sales force challenges. That's well behind us and sales and marketing organization is really solid. As we came back up after the cyber incident, we had a lot of challenges with our manufacturing facility. And that put us in a back order, and that was -- has been very, very painful. It got better in the last quarter. We also had the onetime benefit, which I mentioned in my opening remarks. But I'm starting to feel like AVS, the excitement from our customers is incredible. Customers are really excited about technology, the method of action, and it's the same customer that also uses our other Peripheral Vascular products. So we believe that synergy is going to be fantastic. Not only will the product, we believe, perform very well, but we believe it will have a synergistic effect on the base business. So we're looking -- we're just waiting for the FDA approval and the teams are already preparing for launch.

Your next question will come from the line of Matthew Taylor with Jefferies.

I wanted to ask you somewhat conceptual, but also pragmatic question about AI. You've seen in other areas of the market and in health care recently, a lot of subsectors get credit for AI and the improvements that it could bring. It doesn't seem like that's really happened at all in med tech and yet you have a couple of businesses now with robotics and surgery and connected care that I would think over time could have significant product benefits, development benefits from AI. So I was hoping you could talk about that a little bit why you think med tech hasn't gotten credit and the kind of benefits that we could see from AI on your business and in med tech over time?

I think what we've generally seen within health care and med tech specifically is when you have new cycles of technology innovation, it tends to take longer before it has an impact. Just the regulated nature of our industry tends to cause -- take it a little bit longer. Say, robotics is a good example where robotics has taken hold in a lot of other industries and more recently has really started to take off in med tech. We focus a lot of our energy on AI for innovation. Yes, we have some productivity initiatives ongoing, but we have 3 FDA-approved AI products and you referenced a couple of them when you were speaking in your question. And we have a number of other ones. Most of our product innovations that we're launching, anything in an enabling tech world is likely going to have some kind of AI component to it. And we're very excited about the promise of bringing science to health care and using AI to help drive that science. So that when you visit a surgeon, you're not just getting one person's lived experience, you're going to be getting a wealth of data at your disposal to be able to make informed decisions, just like we do with our Blueprint preplanning software for our reverse. So we are investing in it. You're going to hear more from us. It is always a little bit slower in med tech. That's just the nature of innovations in a regulated industry.

Our next question will come from Vijay Kumar with Evercore.

Kevin, maybe my first one for you. When you look at '27 and new products, you listed out, I think in the past when we've had these System 9 and 1788 launches, you call them as super cycles. I'm curious on given the current environment, how would you characterize this impact of new products? Is this still something that you would characterize as a super cycle for '27?

Yes. Look, the phrase was important because we had a number of platforms all being launched at the same time. And what I'd say is our innovation never stops. And sometimes the timing is just all at the same time. Sometimes it's metered out over -- you have a power tool launch 1 year, a camera launch the next year, a Mako upgrade in the next year. So sometimes they're a little bit more spaced out. It just happened to be condensed all in one sort of cluster, if you will. But I would say that we have great innovation ongoing. Innovation gets rewarded in med tech. And so we are going to continue to invest in innovation. And the platforms, I can tell you, 1888, I'm incredibly excited about. It has some features that it's going to be a step change. So as 1688 was a step change, 1788 was a little bit more incremental. I think 1888 is going to be fantastic. And then we have System 10, and we have all the other products across our portfolio that we'll be launching. Neptune is always is a great product that platform changes obviously drives growth. So every time we do these innovations, it drives growth. And that is not changing. That dynamic isn't changing and the capital market is really good. We're seeing our order book being elevated, and we're not draining our backlog. And we're just -- frankly, if you think about medical as a good example, LIFEPAK 35 and ProCuity are still new products. And they don't sound new, but these products ramp over an extended period of time just because the replacement cycle is a lot longer on bed stretchers and defibrillators. And so the demand for those products are very significant, and we're actually building extra capacity, especially in beds. The demand is very strong. And so those are still kind of new products even though they've been launched a little while ago because of the replacement cycle. So we feel good about our innovation. It's alive and well in our company, and a number of those launches will occur in '27.

That's helpful. And maybe Preston, one for you. I saw the buyback in the quarter, you have a new authorization for $3 billion -- what's the, I guess, philosophy behind capital allocation decisions, right? Is this something that you would consider as more opportunistic in nature when you think about deploying capital towards buybacks?

Vijay, thanks for the question. As we said last quarter, given the timing of when we have our deal flow from an M&A standpoint that we would look at more opportunistic share buyback opportunities. And that's kind of what we saw. That's what we saw in the third quarter, we'll continue to evaluate that in the fourth quarter as well. But just to reiterate, and Nick talked a little bit about this in his prepared remarks, the capital allocation from our standpoint, the #1 priority remains M&A. And so we want to continue to put our dollars towards M&A -- but just given the timing of what we've had this year and what we see, this does just give us the opportunity to go out and do some opportunistic repurchases of share. The one thing I would say, too, is it doesn't take away from any of our firepower. I think what we've been able to demonstrate over the last several years is a continued increase in our ability to generate cash at a higher rate and some of the scale, some of it is the work that we're doing on working capital and other areas. And so that gives us a lot of flexibility now to go out and enhance our capital allocation in terms of how we're thinking about where we put our dollars to drive shareholder value. So this just gives us another lever to do that.

Yes. I'd just like to add something about M&A. So we continue to remain a disciplined acquirer, and we had a number of targets that we weren't able to close on this year. And some of those targets basically didn't trade at all, and we hope will actually come back to us as opportunities in the future. And so we do have an active pipeline. But with the sheer amount of cash we're generating, we're able to do these buybacks and still pursue all of the deals that we're pursuing right now. And we intend to remain active in M&A going forward.

Our next question will come from the line of Chris Pasquale with Barclays.

You mentioned mitigating execution risk related to capital equipment sales as one of the factors behind the guidance revision. I was just hoping you can elaborate on that. Are you saying you're just being more conservative about what's assumed between now and year-end just to absorb any delays that might crop up? Or is there more to it in terms of what you're seeing out there in the market?

No, Chris, I think that's right. When you listen to what Nick said earlier with regards to capital demand, demand is there, and we're seeing very, very strong demand. We talked about ramping production, which we've been doing and we were able to do on many of our lines, particularly around medical. It's just making sure that we can match that production and supply with the demand as it continues to grow. So again, it's a bit of just a more conservative view in terms of our ability to just make sure that we are executing at the highest level to make sure that we can meet all the demand that is out there from a capital standpoint.

Okay. And then you had called out weakness in hips previously. The knee performance this quarter was sort of the incremental. Did some new dynamics emerge on the knee side in terms of your competitiveness in that segment? And if we think about the impactor as being a catalyst for improved relative performance in hips, is there something similar you're looking for to provide a boost in knees?

As we look at the market, we typically not tend to over-index on one specific quarter. If you look at the trends over the past 12 months, we really haven't seen any notable movement in share. We've been growing more in line with market. If you look back over the past few years, we've certainly been exceeding market growth by a meaningful amount. And over the past couple of quarters for a variety of reasons that Kevin talked about, we've been growing more in line with the market. As we think about our performance moving forward, we're excited to play offense and and certainly having the hip impactor in our portfolio is going to allow us to do that in 2027 and beyond.

And the thing I would add from a knee standpoint, and Kevin mentioned this, it's really just continued execution of our enabling tech strategy to really talk about Mako 4, Mako RPS, along with the new products that you mentioned, the Triathlon Gold and MSI. I mean those are elements that we feel give us a lot of opportunity to play offense, as Nick mentioned.

Yes. And I'd add that the medial stabilized insert is actually doing very well. and getting really positive feedback. It's a polyinsert, but it's -- there's a demand in the market and to be able to convert business. That's something we're very bullish about. That start has been very good, and I think that could be an accelerator going forward.

Our next question will come from Patrick Wood with UBS.

Two quick ones. One, just the state of the union on the Smart Care business like the Vocera and care.ai. I know obviously, last quarter, but that's been a big push this year. So that's the first one. And then the second, extremities is obviously still doing very well. What do you think it is that's distinct about, say, shoulder that is enabling it to sort of back off some of the pressures that hip and knee has seen? I know that the base market growth is way higher. But in your mind, what's distinct about the patient pool that's enabling that to remain as strong as it sounds like it is?

Yes. So the first thing I'd say is Smart Care had its best quarter in our history this past quarter. So it was a big contributor to the growth in medical. It's small relative to the size of medical in dollars, but it had very high double-digit growth in the quarter. Orders are picking up. The integration of care.ai with Vocera is smooth. We've moved things to the cloud. So a lot of the early integration pains that we've had, we worked through that. And we are very excited about the momentum. The most excited I've been since, frankly, we've done those acquisitions. The integration is smooth. The customer experience is terrific. Virtual nursing is really becoming a common topic across hospitals to drive productivity, and care.ai is very well suited for that. So I would say I'm more bullish than ever about this. It's taken us a while admittedly, but we had a terrific quarter in Q3, and that will -- we expect that to continue going forward. And the second part?

Shoulder.

Shoulder. Yes. Shoulder, look, it's a little bit a newer joint. If you think about hips and knees have been around a long time. Shoulder -- the results from shoulder joint replacement are really terrific. In the past, they sort of had -- didn't have the same degree of great outcomes. And obviously, we're the #1 player in that with the Tornier implants that we have and so many innovations that we've launched in short stem, stemless. We now have Mako shoulder. They have that application. That's creating a buzz. We -- So we have the Pyrocarbon that's really great for sort of hemiarthroplasty. So we have so much innovation, and we've sort of been scaling those innovations in shoulder ID, which is a personalized lenoid -- these are all launches we've had over the past 2, 3 years that have kind of scaled and created tremendous differentiation in our shoulder business. So the market as a whole is growing faster and has been growing faster than hip and knees for a while because it's a newer market where people are now seeing great outcomes, telling their friends about it. And I think it's going to be a very big market in the future because a lot of people are living with pain and they could get addressed. And I think that Mako shoulder will actually potentially grow the market as hip and knee surgeons that used to do shoulders, if they're familiar with Mako, they may very well go back to doing shoulders again, which they potentially had abandoned in the past.

Our next question will come from Mike Matson with Needham & Company.

Just wanted to ask one on the commentary around the hip and knee market. I think you're saying 2.5% growth. Was that kind of your estimate of the year-to-date growth or the growth in the third quarter? Because just looking at your numbers in the third quarter, it looks like you were about flat, which would imply a fair bit of market share loss. It sounds like you're sort of saying that you think you grew in line with the market. I'm just trying to figure out, has the market gone from low single digits to more flattish in the third quarter here?

No. So again, I think Nick mentioned this as well. We never look at a quarter in the hip and knee market and kind of say that's indicative of a trend. And so when we talk about 2.5%, we're really trying to understand and extrapolate over the course of the year or even the last -- kind of last trailing 12 months. Hard to do since not everybody has reported yet, so we have to wait and see what that looks like. But that's our read on the market kind of year-to-date is that -- call it roughly 2.5% is what we're assuming growing.

Okay. But the message is that you think it was slower in the third quarter than the first half of the year?

We do think it slowed down a bit more in third quarter.

Our next question will come from Jason Bedford with Raymond James.

This is Elaine on for Jason. You talked about the factors driving the ortho slowdown. And I was wondering, are you seeing similar dynamics have an impact on MedSurg volumes? Or would you say that MedSurg is more insulated given the acute nature of the procedures?

Yes, the latter. We see this more insulated. We have not seen a slowdown there. Preston talked about our growth drivers heading into Q4 and a lot of those are on the MedSurg side.

Okay. And I have a follow-up. So Ortho Tech came in a bit better than our expectation despite the broader ortho softness. Can you talk about what enabled it to do better? And do you have an update on the progress with Mako shoulder and Mako RPS?

Yes. So yes, we were very pleased with the OrthoTec performance. Mako growth was tremendous. And as a reminder, we have a balance between upgrades as well as brand-new installations, and that balance continues since we launched the Mako 4 platform. We also had a very strong performance from our orthopedic instruments business. So those are the power tool type business. They did very well. Capital sales they were very strong in the quarter. So those are both very good. And then Mako RPS is off to a slow start, really good customer feedback, but we've got to get our sales force playing offense and a bit distracted last quarter. So we have incentives in place and a commercial offense that's going to lean in a lot more on RPS as we go forward. And then the shoulder for Mako is getting really, really good feedback and contributing to the shoulder growth.

Our next question will come from Mike Kratky with Leerink Partners.

This is Sam on for Mike. So it just seems like we're hearing anecdotes of price competition getting more intense in orthopaedics. So I was just wondering what you guys are seeing out there on the pricing side and your expectations for 2027.

Yes. From a price perspective, we've maintained kind of our same expectations through the year. I mean we expect modest price across the entirety of our portfolio. That will likely come from more on the MedSurg side. We'll get some positive price. And on the ortho side, we're trying to hold as much price as possible, but we'll end up in a slightly negative position, which is not significantly different than where we were last year. And so from our perspective, we're not expecting anything significantly different than that.

Yes. I pick up some noise in the market around prices going down because of bulk sales. So there is some activity of -- it's not happening at Stryker. We don't do bulk sales. We report our price. We actually report price, which not everybody does in our market. And so that's what I hear. Outside of that sort of base business, normal contracting, it's a pretty stable pricing environment. So that's the noise that we hear, but it certainly doesn't apply to us.

Got it. Helpful. And then just on the Vascular side, can you provide any color on how much in share loss during this interim disruption you kind of view as temporary versus potentially more durable and how difficult it may be to get back any lost share in accounts that have been disrupted?

Yes. So what I would say is we feel really good about being able to get back on offense, as Kevin mentioned. And so anything that we feel like we've lost, we believe is temporary and that we'll be able to get back out and start winning that business back. Certainly, having ABS and launching that product sometime next year will be a big help as we continue to build out and diversify the portfolio to have a winning offense in '27.

Our next question will come from the line of Richard Newitter with Truist.

Maybe just the first, congrats on the CMR Surgical deal. I guess maybe you could just tell us why that asset, Kevin, you've talked a lot in the past, you don't feel rush you guys are kind of going to make the right decision? And just maybe also as you answer that, the why now, why that asset? And then why not just purchase it outright?

Yes. I think I sort of mentioned this earlier in the call, but an outright purchase comes with a lot of risk and then huge cost for continued ongoing development. And we have to make sure that this is going to be a commercial success in the United States. That really will determine the ultimate success of CMR. And so we are going to actually run the sales office in the United States, and we know how to run sales. So we believe we're going to be very successful but we don't want to put all our eggs in this basket. It's a high-risk kind of a deal. There's still ongoing development that's needed, and they have a really strong team. They've changed to Versius Plus has been excellent. We've been talking to this company for a long time. For many years, we know them very, very well. We watched their trajectory. They have a 10-plus years of experience and time over target in robotics is actually really important. We saw that with Mako, having all those years under their belt before we acquired it was massively helpful. But we don't want to just jump in here. Unlike Mako, which had implants attached to it, this is a pure adjacency. And it's not something we wanted to rush into necessarily. And it's just a risk we felt we didn't need or want to take at this time and also put a lot of other financial pressures onto the rest of our portfolio. So it's financially derisked, operationally derisked -- but we like the partner. We have a great relationship with their leadership. And that Versius Plus, the improvements that they made to that system, we always like the design, the modular nature, easy to move around between rooms, so great for the ASC and great for -- if you have a lot of surgeons that want the robot today, there's many surgeons that would love use a robot, but they don't have one in their hospital. And this is, as I said, great for those high-volume procedures that will switch from being laparoscopic and open into robotic. So the feedback, we did surgeon testing, a lot of evaluations and the feedback was really positive. We hired a medical director as part of the endoscopy team, Dr. Santiago Horgan, who is very famous. And he looked at every single robot and was -- he was our Chief Adviser on this, but also used a panel of surgeons to assess all diffserent robotic technologies. There was a few that we liked, and this one was a clear winner. And -- but not jumping in all told is because it's a new space. It's a pure adjacency. There is obviously a large incumbent, and we have to be able to prove the U.S. success. But our hope and our plan is that this does work and that we do eventually take it out.

And maybe just one on orthopedic robotics. You have a competitor coming out with their monogram at some point next year. Just wanted to hear, Kevin, your thoughts on how Mako is positioned or what you're expecting as the features of that product eventually kind of hit the market? And any thoughts on that?

Yes. Well, for now, we're going to hold off making any comments until we see it in the marketplace. But we love our solution, which, of course, has multiple applications on the same robot, which this will not have and obviously proven success. Robots aren't easy. And as we've seen with other offerings in the marketplace, it takes a little while to get it to start to perform in a decent way. And we still think we have the winning platform. We looked at this company, obviously, earlier on, but I'm going to reserve judgment and wait until we see what happens. Let's see it come to market. And all I can say is robots are hard. And it's not something that I'm really afraid of in the near term, but we'll see.

Our next question comes from Matt Blackman with TD Cowen.

It's Drew on for Matt. Kevin, just one for you and then one for Preston. But you were talking about CMR a few times in the call, but I'm just curious if you could give us maybe a deeper view on where do you think the biggest opportunity is? Is it just conversion from lab or open? Just which bucket do you think has the largest opportunity? And maybe how should we think about the potential for you to integrate your tower and camera business in with CMR? You mentioned 1888 is coming. It's a step change versus 1788. Just curious if that really helps you go deeper in existing surgical categories? Or does this even open up new surgical areas for you?

Yes. So the second part of your question, I'm really not going to answer because we haven't bought the company. And in fact, we haven't even closed the agreement, but it will close shortly. But really, we're going to work with CMR. It's still their company. We're an investor. We have a stake in the company, and we have a Board seat with the company. But we'll work with them. You do need a tower with their robot. And obviously, if we're commercializing the robot, chances are we're going to try to partner with our tower, but there are a lot of synergy opportunities. And we will work with them on some of those synergy opportunities. And then ultimately, when we eventually acquire this, then we'll be able to talk a lot more openly about our plans. So for now, it is a relationship that we have with them, and we will show them things that we can collaborate. But ultimately, they're going to have to agree because it is still their company. Definitely, the biggest opportunity is conversion of laparoscopic and open to robotic. That's where the biggest opportunity is. Again, it doesn't mean that we won't be chosen in some cases versus the competitive offering, but that's really not -- that's not the prime focus. There are a lot of procedures done today and Laparoscopy isn't easy. Laparoscopic surgery is not easy. It's not an easy robotics will make these procedures easier to perform. And we think that will drive much higher adoption of minimally invasive surgery.

And for Preston, earlier in the call, I think someone mentioned that there was a China JV revenue hit in the quarter. Just wondering if you might be able to quantify that for the Vascular business.

Yes. So yes, we did get a onetime benefit out of our joint venture in China. As a reminder, this was a joint venture that was in place when we purchased Inari. We aren't calling it out specifically. What I would just say is underlying business, the ongoing underlying Peripheral Vascular and Vascular business is about in line with the comments that I made earlier in September and similar to the performance and impact that it had on the business in second quarter.

Our final question will come from Vik Chopra with BMO Capital Markets.

Just a quick question for you on ZuriMED. I'm just wondering how that FiberLocker technology expands the soft tissue augmentation portfolio? And anything you can share around revenues and time line?

Look, it's a little early for us to share much on revenue and time lines. What I'd tell you is it's a very differentiated performance product. It has an open system in terms of the type of material that you're able to attach to drive that fixation. We love the applicator. The applicator is kind of almost like a magic the way it applies the fixation, really, really clever design. And we think it's going to be an absolute winner. As you know, this is an area that rotator cuffs have a lot of failures and this additional sort of augmentation will provide tremendous clinical benefits, and it has been a fast-growing part of the market. We did not have a solution for this. And we looked at some others and we passed on them because we didn't feel they were differentiating enough. And this one is the one we feel will be an absolute winner. We already have -- and the timing is just perfect because we've launched all of these shoulder products, and now we have this augment as well. So it's really something that we're excited about. We'll share more details as we launch it in terms of success, but I do believe it's going to be a winner in the market.

There are no further questions. I will turn the call over to Kevin Lobo for closing remarks.

We thank you all for joining our call, and thanks for all the time we've had over the years. We look forward to sharing our Q4 and full year 2026 results with you at the next earnings call. Thank you.

This concludes the Third Quarter 2026 Stryker Earnings Call. You may now disconnect.