Stryker (SYK) Kevin Lobo on Q4 2015 Results - Earnings Call Transcript

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Stryker Corporation (NYSE:SYK)

Q4 2015 Results Earnings Conference Call

January 26, 2015, 04:30 PM ET

Executives

Kevin Lobo - Chairman, President & CEO

Bill Jellison - CFO

Katherine Owen - VP of Strategy and Investor Relations

Glenn Boehnlein - VP & Chief Financial Officer

Analysts

Bob Hopkins - Bank of America

Mike Weinstein - JPMorgan

Rick Wise - Stifel Nicolaus & Company

David Roman - Goldman Sachs

David Lewis - Morgan Stanley

Kristen Stewart - Deutsche Bank

Jason Wittes - Brean Capital

Matt Miksic - UBS

Joanne Wuensch - BMO Capital Markets

Raj Denhoy - Jefferies

Larry Biegelsen - Wells Fargo

Glenn Novarro - RBC Capital

Mike Matson - Needham & Company

Kaila Krum - William Blair & Company

Matt Taylor - Barclays Bank

Matt Keeler - Credit Suisse

Rich Newitter - Leerink Partners

Joshua Jennings - Cowen & Company

Matthew O’Brien - Piper Jaffray

Jeff Johnson - Robert Baird

Steve Lichtman - Oppenheimer

Operator

Welcome to Fourth Quarter 2015 Stryker Earnings Call.

My name is Adrian and I will 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. [Operator Instructions] 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 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 would now like to turn the call over to Mr. Kevin Lobo, Chairman and Chief Executive Officer. You may proceed, sir.

Kevin Lobo

Good afternoon, everyone, and welcome to Stryker's fourth quarter 2015 Earnings Call.

Joining me today are Bill Jellison, our CFO, Katherine Owen, Vice President of Strategy and Investor Relations and Glenn Boehnlein 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 topline growth at the high end of MedTech. This marks the eleventh 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&D investment and a focus and disciplined M&A effort.

Approximately 70% of our sales are derived from our U.S. businesses, which once again led growth, hosting an impressive gain of approximately 8%. I’m also pleased with the growing momentum out of Europe including strong Q4 results benefiting from the shift for the Transatlantic Operating Model at the beginning of 2015.

We are building on the success as we start 2016 with Canada rolling into the model and the other regions now reporting to our Group Presidents since 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've demonstrated the ability to offset isolated geographic softness to strengthen 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 topline. The balance of the P&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 two year suspension of the Med Device Tax provides us with the opportunity to bolster investments and will help drive sales growth and innovation as we plan to invest the majority of this temporary benefit.

We’re also continuing on our path toward driving greater cost efficiencies which is multiyear opportunity. Over the past year, we've 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 Group President Lonny Carpenter. We've 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've done with direct materials moving to a common ERP system and driving more shared services.

Given our history of decentralization, there is 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&D and business development, while hoping to ensure we're consistently delivering P&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 it includes a negative foreign exchange impact of $0.12 to $0.13 a share.

Finally, I would 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, the last three of which have been in 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 we've achieved while enabling our internal talent pool to develop including Glenn Boehnlein 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 of the company and has been a consistent force behind our strong results. I’m confident in Glenn’s ability and coordination with the broader financial organization to help build on our strong momentum.

Before turning the call over to Katherine, I would ask Glenn to make a few comments. Glenn?

Glenn Boehnlein

Thanks Kevin. I appreciate the comments and the support, but I also want to thank Bill for his leadership of the finance 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 Katherine.

Katherine Owen

Thanks Glenn. The focus of my comments today will be to provide an update on MAKO. 2015 was a year of building momentum for MAKO’s robotic assisted surgery as we continue to leverage our considerable sale and marketing infrastructure to help drive sales.

We're 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.

The 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 robots globally in the quarter, 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 fourth quarter of 2014.

For 2016, we're focused on continuing to drive adoption with our current indications, which we believe offers considerable opportunity to drive ongoing robot license.

We're 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 group will be in place as we head into next year.

With that, I'll turn the call over to Bill.

Bill Jellison

Thanks, Katherine.

I would 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 with a strong cultural fit and personal fit from the first week that I joined the company.

We ended 2015 at the high end of both our initial sales and earnings guidance that was 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're driving for business well for the future.

I look forward to ensuring a smooth transition with Glenn and entering another stage of my life. I'll 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 6.4%.

GAAP EPS for the quarter was $1.38 per share versus $0.68 last year in the fourth quarter, while adjusted earnings per share were $1.56 a share for the quarter versus $1.44 per share in the fourth 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 Franc along with our layered hedging program helped to mitigate some of the impacts 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 results in those regions.

The most significant non-GAAP adjustments in the quarter where amortization, restructuring changes and a net reduction in the charge associated with the voluntary recalls of the Rejuvenate ABG II Modular Hip Stem as we resolved some insurance matters in the quarter, which more than offset the additional in the period.

As I've mentioned previously, the charges we've recorded related to the Rejuvenate and ABG II recall represents a 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 and our assumptions more refined.

In the fourth quarter, our organic growth rate was 6.4% 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, Orthopaedics represented 42% of our sales in the quarter and sales of Orthopaedic products grew 3.3% as reported, and 7.1% in constant currency. U.S. Orthopaedic 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 fourth quarter 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 3d printed products.

Our international Orthopaedic business grew 2.4% in constant currency as sales growth continue 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 fourth quarter and grew 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 third consecutive quarter of strong growth in U.S. spine. Spine also had a new 3D 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.

In looking at our operational performance, gross margin as a percent of sales on an adjusted basis in the fourth quarter was 67.2%, compared to 65.8% in the fourth quarter 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% or 50 basis points higher than last year.

Research and development expenses increased by 20 basis points to 6% of sales in the fourth quarter compared to 5.8% in the same period last year. On an adjusted basis, selling, general and administrative expenses represented 33.7% of sales in the fourth quarter compared to 32.4% in the same period last 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're confident in our ability to leverage these expenses in 2016 as we continue to drive in 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% in the fourth quarter, compared to 27.6% 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 fourth quarter was $36 million. This increase in expense resulted primarily from higher net interest expense due to increased borrowings and foreign currency exchange transactional losses in the fourth quarter. This is generally consistent with the run rate for this category.

Our reported tax rate for the fourth quarter was 14.7% while the adjusted effective tax rate was 16.6% for the fourth quarter compared to 22.6% in the same period last year. The fourth 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 realize the benefits from our global tax structure in European regional headquarters in Amsterdam.

Looking at the balance sheet we ended the quarter with $4.1 billion of cash and marketable securities, approximately 50% of it now held in the U.S. We also had $4 billion 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 and inventory finished the quarter at 165, which was an increase of five days compared to last year.

Turing to cash flow, our cash flow from operations for 2015 were $900 million compared to $1.8 billion last year, but as previously mentioned, we made significant payments earlier this year associated with our rejuvenate and ABG II Recall settlement of $1.2 billion most of which occurred in the third quarter. Approximately 50% of the funding of the rejuvenate liability is being source from OUS cash.

We also repatriated a total of $1.8 billion in 2015 including approximately $1.1 billion in the fourth quarter. Capital expenditures were $270 million in 2015 compared to $233 million last year.

Finally regarding share repurchases in 2015 we repurchased approximately $700 million of our current stock or approximately 7.5 million shares at an average price of approximately of $94.67. We have authorization for another 1.9 billion 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 2016 and expect to be at the low end of that range in the first quarter as we are still anticipating impacts of market conditions in the emerging markets especially China and Brazil.

The foreign currency exchange rates hold near current levels. We 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 the 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 2016 in total.

The benefit from the suspension of the MedTech tax will directly benefit our gross profit rate. However R&D will run slightly higher in 2016 and our SG&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 '16.

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% to 17.5%.

Capital expenditures are expected to be $400 million to $450 million 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 first quarter.

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 has been 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’ll be glad to answer any questions that you may have at this time.

Question-and-Answer Session

Operator

Thank you. We will now begin the question and answer session. [Operator Instructions] As a reminder, callers will be limited to one question and one follow-up question. Our first question comes from Bob Hopkins from Bank of America. Please go ahead.

Bob Hopkins

Thanks. Can you hear me okay

Katherine Owen

Hi Bob.

Bob Hopkins

Great, hey good afternoon. So first Bill, sorry to see you move on, but good luck with the next chapter. So it will be remised if I didn’t asked a follow-up question on this announcement and may be the way to phrase the question Bill is and for Kevin and Katherine, you guys have been talking about M&A for some time.

And I’m just curious if this CFO transition suggests any change in strategy or maybe suggested mirror larger deals kind of less likely until after this transition is complete. Just getting curious how this could affect strategy and/or the outlook for M&A and thanks and again congrats Bill for the decision.

Kevin Lobo

Yeah, 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 is inside our company. So this not like we're signaling any kind of shift in strategy.

I would tell you we’ve been very consistent on capital allocation since I've been in the job and even before that our approach is to favor M&A first, then dividends and then share buyback. So there is absolutely zero change to our operating mode and I’m expecting a very smooth transition.

You can see that we have a 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.

Bob Hopkins

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?

Kevin Lobo

Thanks Bob. Look we see the market as very stable for capital equipment. You can see in the fourth quarter 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 fourth quarter.

So we look at the market as being very stable. We're just embarking upon our launch of our new camera 1588 with an endoscopy. We had a nice start in the month of December and the orders look quite healthy going into the year. So, we're not seeing really any change, a very stable capital market.

Operator

And our next question comes from Mike Weinstein from JPMorgan. Please go ahead.

Mike Weinstein

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 questions guys. So one question is the 5% to 6% constant currency guidance for 2016 obviously, you've by and large have 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 challenge in emerging market environment for the year? So I just want to get some sensitivity around it.

Katherine Owen

Yeah, 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 were difficult to predict given the macro issue surrounding them.

We do benefit from easier comparisons as we get to the back half of the year, but we assume your real market there continues to be a bit of a challenge.

Kevin Lobo

Yeah Mike, I would say the emerging markets for us, we had similar performance in the fourth quarter as we did in the third quarter. So we're 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 to the disposables or implants on Stryker.

So we're expecting that to continue to be difficult and that will be a drag and it's certainly in the year. So we're setting our guidance from five to six. As you saw last year, we moved our guidance up during the year.

If these conditions don't or are not as severe, you can expect even 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 that those markets are going to be challenged and we're just baking in some caution around those markets.

Mike Weinstein

Understood. So let me two quick follow-ups relative to the guidance. So one, you started to talk about the cost transformation initiative in greater detail in San Francisco and in the 2016 guidance, you're basically assuming no SG&A leverage and that's part of what you're what about reinvesting back in the business with the benefit of the MedTech packs, helping the gross margin line.

So can you just talk a little about where you're going to incrementally invest if that will show up in SG&A or will it all show up in R&D.

And then second, the acceleration of the share buyback and acceleration maybe is not the right term, but you bought that more stock than you had been buying back in the fourth quarter. Can you just talk a little bit about what's in your 2016 guidance curve for capital deployment?

Bill Jellison

Yeah, so it's couple different questions there. The first one associated with kind of the margin rates and also the SG&A area. We do and 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&D related side and the remainder kind of in the SG&A area.

I would say that with the cost initiatives that we've got in place that you would have seen and obviously better leverage there, but with the reinvestment that 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 up to about $700 million 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 billion 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 two to three year period of time barring any sizeable acquisitions and hopefully as Kevin mentioned, acquisitions are absolutely still our first 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.

Operator

And our next question comes from Rick Wise from Stifel. Please go ahead.

Rick Wise

Hi Kevin. Hi everybody. Maybe Kevin to start my first would be on the operating margin outlook. Obviously you're exiting 15% to 27.4% maybe just comment if you would on your aspirational goals here? Is it 30%? Is it 35% over the next two to four and three to five years, but just talk about the magnitude and the durability of this seemingly long-tailed opportunity?

Kevin Lobo

So Rick, look we only give guidance out for one year right. So we provided you guidance this year, which shows some pretty meaningful leverage on the EPS line. Coming off the year, we just delivered leverage and we didn't have the 12% to 13% share of negative FX.

We would be giving EPS in the 10% to 14% range. So that's pretty meaningful leverage on sales of 5% to 6%. So you should expect us to continue to drive meaningful leverage. That's the goal of the constant program.

We've said before there are significant opportunities in the hundreds of millions of dollars and as we drive those savings, we'll obviously if there is great opportunities to invest, we'll invest some of those dollars and some of those dollars will fall to the bottom line.

But I don't have a magical number and I think it also depends on as the year's 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.

Rick Wise

Okay. And Katherine maybe for you on MAKO. Can you give us a little more color on your comment you talked about increased demand for the hip indication. It seemed to me you've placed 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 in software?

Katherine Owen

So I think it really is reflective of being complete year two of the acquisition. So working through the integration and really helping the combined sales forces to optimize their education and around the features and benefits of our hip system on the robot-assisted platform and getting out there and really detailing those benefits.

It's a nice mix of both existing striker customers, but also new accounts that we're able to get into with the robots. We're 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 '17 for the total needs, 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 are meshing those observational studies to really fine-tune the training protocol. We then have to train our own sales force do the upgrades of the system.

So there is a lot work to be done to make sure when we go into full commercial launch, we're 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 ground work to really ensure when the great position in 2017 to take full advantage of the total knee indication.

Operator

And our next question comes from David Roman from Goldman Sachs. Please go ahead.

David Roman

Thank you and good afternoon, everybody. I wanted to just start with some of the investment spending that you're committing to through the P&L. Over the past several years, you've been very consistent with investing your business both SG&A and R&D, which has obviously produced this very nice topline growth rate.

But as you look forward as you continue to invest in the business, do you see opportunities to enhance the topline growth rate beyond what you're performing today and where are the most attractive areas of investment for you?

Kevin Lobo

Well, I can tell you that I get a chance to travel around all of our divisions over the course of the year and yet to meet and R&D that has enough money to spend on new product.

So I would say that all the divisions have opportunities. There is 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&D.

We've had three great quarters in a row in the U.S. We still have to take a lot of those products outside the U.S. But I would say that will be in 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 well as extremities, I would say I picked those four right off on top of my head, but I would tell you we have a long list and if my other division president's 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 to just spend for the sake of spending.

In the company as big as Stryker is with the decentralized focus, we're seeing that innovation delivers. And I cited one example of 3D printing where I think we're seeing it to have an impact on two different divisions of striker our knee business as well as spine and we have a huge line up of other divisions with ideas and prototypes to get into 3D printer titanium product.

So I would say that those are 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.

David Roman

Okay. That's very helpful. And then on the capital spending side, the $400 million to $450 million at the end of the high end of the range that would be almost a doubling from where you were I think in 2014.

Could you maybe just help us go into a little bit detail on where those CapEx dollars are going? How much of that are 2016 isolated in nature and what the implications of this additional CapEx are to the rest of the business down the road?

Kevin Lobo

Sure. I'd say that there is beyond just supporting the operations in the higher growth level that we've got in the company, there is a couple of areas of specific investment.

One is on in the ERP transformational area, which is strengthening our global ERPs on a world-wide 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 3D 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 might want to take advantage of that this year is a little bit of a blip in comparison to what that normal CapEx would be.

Operator

And the next question comes from David Lewis from Morgan Stanley. Please go ahead.

David Lewis

Good afternoon. Just a couple of question. One, Kevin, just to start off with the Ortho market, I wonder if you could just comment on 2015 if you think about the underlying momentum in the market and your share position, how much relative share you may or may not taken in '15 and how those dynamics in your mind compare to the outlook you'd see for '16 both in terms of how the [audio gap]?

Kevin Lobo

…the last three, four years have 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 two.

Trauma, of course as you know has been standout for us about four years and we continue to launch new products and we continue to growth 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 meeting for orthopedics and spine, I could tell you they feel very good about our competitive position in a market that seems very stable. So I think we'll see more of the same in terms of volume growth and we like our competitive position.

David Lewis

Okay. Thanks Kevin, and just two quick ones. One, just Katherine, just thinking about MAKO for a second, you're now selling more systems than the target MAKO ever did. And I wonder are you seeing any push back on ASP system around a million dollars.

And in light of one of your competitors acquiring another competitor specifically in robotics, do you expect to see some ASP pressure in '16 or '17?

And then Bill, you sparked my interest on the 3D printing facility. Is this is a facility that will be capable of doing 3D printed full total knee and hips or is this more derivative products to the orthopedic process? Thank you.

Katherine Owen

On the capital side, obviously, that's always going to be a conversation. You don't sell a million dollar capital easily, but I will tell you we are million dollar capitals. So those robots are sold. They're not placed.

I think what we're doing is really leveraging the ability to offer different models and 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 how helping and it's really I think the difference between when MAKO with standalone is we have a very large selling organization that over the last two years has really come to understand the features and the benefits.

And the value proposition has only improved going from the knees then to a hip, then to a hip with our hip system is on it and now knowing that 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.

Bill Jellison

And the second part of your question was around 3D printing. So we've launched over the past few years we've started with part of our knee system to enable cementless knee. So tibia base plate. We have this past year in the middle of the year launched revision cones with geometry that can only be made with 3D printing.

We have our patella that we've launched that's 3D printed and now we're just about to launch a 3D printed titanium interbody device for spine. So all of the products we've launched thus far that our 3D printer 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 three, four years or so, our focus is really on innovative new products and not replacing our existing products with 3D printed products. The pipeline of innovative new geometries that can't be made without 3D printing is the area of focus.

So it's not about trying to replace our products and drive down cost. Over time ten years from now that could be the case, but in the near to midterm, it's really focused on innovative new products.

Operator

And our next question comes from Kristen Stewart from Deutsche Bank. Please go ahead.

Kristen Stewart

Hi, can you guys hear me okay.

Kevin Lobo

Yes we can Christina.

Kristen Stewart

Okay, perfect. So Bill, I'll reiterate definitely congratulations on your retirement we definitely will miss you. So just a question more strategically, I was just wondering if you feel good about the three main buckets that you have now and whether or not Kevin you feel like there is any need to expand beyond that and get into any other white spaces at this point?

Kevin Lobo

Yeah, no Kristen I'll be consistent with I will be saying in the past couple of years and our strategy is to stay within these three segments fee. 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 I think 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 segment. I know we only completed two deals.

There is 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.

Kristen Stewart

Okay. And then just with respect to the narrow tech area, are there any notable clinical activities coming up for trial readouts or can you speak to any new product pipelines or just think that we should be aware of that could help growth even though obviously it's been going really well.

Kevin Lobo

No, we've been with this -- thanks Kristen. We love this business and I would say our coiling and the ischemic stroke were in great shape and we are growing very well in those two categories.

The one area for Stryker that is 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 in the process of just completing up a trial and we'll be submitting for that, but we're still -- we still have some time before that’s get 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.

Operator

Our next question comes from Jason Wittes from Brean Capital. Please go ahead.

Jason Wittes

Hi, thanks for taking the question. It sounds like we should view the total knee coming out next year as sort of a transformational product. If I look into this year can you may be highlight some of the products that we should be focused on that really drive that growth this year?

Katherine Owen

I would really look at is across the Board very typical Stryker fashion where its more singles and doubles whether it's Endo launching their new 1588 camera or MAKO continuing to drive indications like Hip with the new BS Stryker brand that we talked about or Spine with their new products that are coming out 3D 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'll set up for some more impactful products that when you think about MAKO and the total Knee and expecting to be on a clear trajectory of taking meaningful market share as work our way through '17.

Ischemic is one more of those more transformational opportunities. There is a lot of market development that still needs to take place there around the patient path referral systems, hospital -- inter hospital transfer. So we talked about that being a multiyear process, but clearly seeing some very good growth rates, but off of a still small base.

But I would really think about this year is the typical Stryker story. We've got a lot of products, a lot of momentum, dedicated sales force with especially -- a specialty focus that’s really helping to drive that 5% to 6% growth we're targeting.

Jason Wittes

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 de novo? Just kind of…

Katherine Owen

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.

Jason Wittes

Great, thank you.

Operator

And the next question comes from Matt Miksic from UBS. Please go ahead.

Kevin Lobo

Hello, Matt?

Operator

Matt your line is open.

Matt Miksic

Sorry about that guys. Thanks for taking the 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 new technology, maybe changing the way surgeries 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 multi-line contracting driven by the merits of this system and the technology and I've a couple of quick follow-ups?

Kevin Lobo

So Matt, I would say, look we're still in the early stages. Stryker hip brands are now available recently and we haven't launched a total knee yet. So I think those are the big applications and to say that it is 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 ways 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.

Matt Miksic

Another on the same topic here, Katherine someone asked earlier about hips and what's changing and how you're improving in performance there? To 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 bank 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? What's driving uptake against what was historically viewed as sort of like not the greatest application for the robot?

Kevin Lobo

Okay. So I'll take this question. So look when I tell you the first iterations of the hip software were a little bit clumpy and it requires quite a bit more registration time -- 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 of the software to make it a little bit more user friendly. That's been one factor for sure.

I think the most compelling factors is showing the surgeons on the pre-imposed X-rays that they put the hip exactly where they want to put it and I think even though surgeons that had some hesitations when they see pre-imposed 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 it's mindset and frankly the more of it robotics has 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.

Operator

Our next question comes from Joanne Wuensch from BMO Capital Markets. Please go ahead.

Joanne Wuensch

Good evening and thank you for taking the question. I have two questions. The first one has to do with 3D printing. It became quite aware that a couple of years ago, now you're definitely doing a bigger focus on that.

What does it take for a 3D printed call it hip or knee to become more mainstream, is it manufacturing, is it clinical data? How should we think about this evolving?

Kevin Lobo

Well it's a long answer Joanne and the reason I pause is to get into all the technology on 3D printing will take a long time. The quick summary is the 3D printing metal is very different than sort of the way you think about 3D printing plastic having it on a desk in an office and cranking out 3D 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 off to the race as it's a lot more complicated than that and so we spent a lot of time.

We've been working on this for many, many years and so we have a lot of knowhow on how to program the machines and optimize the machines and so there is a lot of factors that go into it to be able to create and different types of machines work that are for smaller products than larger products.

So it's difficult for me to just summarize in a short time. I would just say that its 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.

Joanne Wuensch

That’s very helpful. As a follow up, what should we expect at the upcoming AAOS? Thank you.

Katherine Owen

Yes Joanne, I think it will be typical to prior years, clearly there is 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 to have a big focus on user feedback from total knees although I sure that we have 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 business 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 a open Q&A forum.

Operator

And the next question comes from the Raj Denhoy from Jefferies. Please go ahead.

Raj Denhoy

Hi, good afternoon. Wonder if I could ask a question about the CJR, CCJR program that’s rolling out. I know that 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 focus on post acute care, which pretty much mirrors the hearing as well.

But my question is really around how Stryker interfaces with that model? When you perform at solutions business, you guys were involved in some of the bundle payments initiatives before. Is there an opportunity for you guys to perhaps benefit from the CGR program as it rolls out?

Katherine Owen

Yeah, we agree with your comments. We don’t think it’s going to have a meaningful impact. We have seen in past with some of our prior program that really does drive to 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 to make them aware of the data. So they can have a sense of what best-in-classes and where some of the cost benefits they can realize whether it’s around infection rates, transfusion 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 a 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 that savings they can realize focusing on rehab really do dwarf anything else at this point in time.

Raj Denhoy

Right. May be 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, if we should think about the next several years do you envision that service components becoming a bigger part of the business, offering not just implants to hospitals but perhaps something a bit broader?

Kevin Lobo

Yeah, that division is continuing to focus on that. It’s not a huge part of our company. I think we see this CCJR is a terrific example and opportunity for us to grow that business but it's not at a scale of 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 CCJR and whether that can become a broader business for us. So services is not something new to Stryker. Well lot of our MedSurg business provides services to hospitals. We have people in the hospitals that our customer pay for to make sure that all their up time 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 becomes 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 CCJR does provide an exciting opportunity for that business, but it’s a very small part of Stryker.

Operator

And our next question comes from Larry Biegelsen from Wells Fargo. Please go ahead.

Larry Biegelsen

Good afternoon, guys. Thanks for taking the question. I want to start with M&A, about a year ago Kevin you said you expected to put the balance sheet to work and I just wanted to confirm if that's still the case and I am asking because obviously you've 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 pulled the trigger on more deals and I had one follow-up. Thanks.

Kevin Lobo

Sure, I would tell you just 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 you should expect us to continue to be very active acquirer, but you’ve seen in the past right sometimes, some years there is one or two deals another 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.

Larry Biegelsen

And then earlier you said that in Q1, you would expect to be at the low end of the 5% 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 range in the range does that depend upon an improvement in the emerging market and if not, how do you get that growth rate up? Thanks for taking the questions.

Katherine Owen

Yeah, I would just comment that if you look at the cadence of quarters, last year we had some difficult comparisons in the first quarter as related to emerging markets more of the pressure particularly in China unfolded as the year went on.

We're going to have easier comps in the back half of the year. We tend to have a seasonally stronger second half of the year particular as it relates to the fourth quarter. So it's more just reflective of how our quarters tend to play out in some of the year-over-year comparisons.

Operator

And our next question comes from the Glenn Novarro from RBC Capital. Please go ahead.

Glenn Novarro

Hi, thanks. Kevin your U.S. Hip and Knee business had a strong fourth quarter of 6% and 9% respectively. Did you see in the fourth quarter the U.S. Orthopedic market accelerate or pickup a bit or do you think that was more share capture from Zimmer given the integration between Zimmer and Biomet and then I had a follow up question on robotics?

Kevin Lobo

Yeah, so look until we see everybody report, it's really difficult for me to say how much of it is the market versus comparative share capture. The Knee number, we're encouraged about. We tend to believe our Knee improvement is more driven by the new products, the revision cones and more of uptick 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 on getting is a very stable market. So wasn’t -- a few years ago, we saw this big seasonal fourth quarter lift. We'll now we're seeing a typical fourth quarter. This December was more or less typical. Its more active, but was more active a year ago two.

So we’re not seeing -- we didn’t see anything or major in terms, from quarter-to-quarter you do sometimes see slight upticks or downticks, but until the report it's going to be difficult for me to comment, but I think you had a second question.

Glenn Novarro

Yes, Katherine 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? Thank you.

Katherine Owen

Yeah, my comments were that we’re 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’re 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 datasets and really put us in a position to have a presence at the podiums in 2017 not '16.

So we think mining 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.

Operator

And our next question comes from Mike Matson from Needham & Company. Please go ahead.

Mike Matson

Hi, thanks for fitting me in. I just wanted to start with the new camera at the endoscopy business, how does this compare with 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 me more of a step change or more of a ramp in terms of the growth and endoscopy and then I have one follow-up?

Kevin Lobo

So no, just the 1588, so each term we have a new version and we call it the classrooms 1488 as you know, now we're calling it 1588. Aim is the name of it. I would say it's meaningfully better certainly 1488 had terrific resolution, but we've improved the backlighting and some of the image clarity for certain procedures like E&T.

So our products works well in wide variety of procedures, but there are certain procedures where highlighting 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 that’s the first thing.

Second thing is we have ICG built into our light source, which we never had before. So with a press of a button, you can light up the organs just I am sure you're familiar with ICG with the comparative 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. So it's really a safe surgery launch.

And it enables safe surgery with enhanced visualization and we just launched it in December. So, we don’t a huge amount of sales yet, but I would say the earlier clinical feedback has been very positive. So I do expect endoscopy to have a better year in 2016 than they did in 2015.

Mike Matson

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 causing impact on your overall results for the company? Thanks.

Kevin Lobo

Yeah, so like with any system of implementation there is 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 dedicated -- 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 send a terrific signal through the organization of kind commit more making.

It will be measured launch. So it will take a number of years before complete and we’re starting off with our instruments division and we’re going to continue to -- we have a steady study march plan that we have an IT leader who is partnering with the business leader who has -- was -- had a previous MedTech company doing exactly this kind of an implantation over the past few years.

So, we believe it's all of our 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 of 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 will be a steady cadence. So even if something does start to wobble a little bit, it should have very, very little impact.

Operator

Our next question comes from Matt Taylor from Barclays Bank. Please go ahead.

Matt Taylor

Hi, thanks for taking the question. Can you hear me okay.

Katherine Owen

Yep, we can hear you.

Matt Taylor

Great. So I was just wondering if you could just follow up on some of those comments on 3D printing and you talked about the materiality of the contributions in the quarter and what you're expecting out that you’re going to be investing more in this new plan? How big is it and how material could that be.

Kevin Lobo

Yeah, so for the moment these are innovative products that are adding I'll call it incremental growth. It's not the core growth. The core growth is our big systems right our triathlon or accolade. That’s where the core amount of our sales comes from.

But this gives a little extra boost and puts a little bit of jump in our sales force step. Gives them something new to talk to the customer about. So, as an example of our vision business lagged -- our market share lagged our primary business in needs by about five or six market share points.

So we've been in our Stryker friendly account. Sometimes they would go to a competitive -- a competitor to do the revision procedure. Now that we have it, we consider best-in-class revision cones, not only do we keep that business at certain stages with Stryker, we gain that sales, but they're not 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 3D 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 are the ones that are causing that extra piece of growth and in a different view of Stryker for the future.

Over time, I expect Robotics and 3D print to take on a more important portion of our overall sales and there will be sustainable and sticky if we have something that the competition doesn’t have.

Matt Taylor

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?

Kevin Lobo

Yes so look, Europe has exceeded my expectations. We had -- 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 first quarter to the fourth quarter.

So, that kind of uptick 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 am starting to see some nice uptick in instruments in 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 will start to see Europe become a division that delivers better topline and starts to deliver some leverage going forward.

We’ve added Canada. So those are now directly managed, a division President has direct P&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 President.

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 integrate a 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 puts nothing about cost reduction that was 100% just to increase speed and connectivity of those countries to our business.

Operator

And our next question comes from Matt Keeler from Credit Suisse. Please go ahead.

Matt Keeler

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 actually picked up pretty nicely.

So I’m just wondering if there was a much more pronounced impact from that emerging market to drag on Hips relative to Knees and if there were any other factors that impacted your Hip business outside the U.S.?

Kevin Lobo

No, nothing particular. You see this from quarter-to-quarter and sometimes you will see sort of Hips jump in the case of Hips, Canada is an example there was a Hip tender that we lost. So that accounted for some of the Hip growth.

There is not one overwriting factor. It’s sort of a story by story, country by country and we see this from quarter-to-quarter. Sometimes you'll see Knee -- our business is not as big outside the U.S.

So you do see a little bit more volatility in our numbers whether its Hips, Knees, Spine. Once those businesses get larger you should expect that there will be less volatility.

Matt Keeler

Great. Thanks and just lastly instruments growth was pretty strong in the quarter, but I think you highlighted that business is later on in its product cycle. So just wondering if you think the level of growth we saw in the fourth quarter if that's sustainable going forward and what are some of the products to watch where you are maybe little later on in that product cycle?

Kevin Lobo

Yes so the Power Tools is the product that we refer to as being late in the cycle. The system setting 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're launching a new signature line of drills. We actually report that as part of a 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 in Power Tools. So I think we're very excited by how they finished the year. They finished the year very, very strong and we think they will have a good year, but longer in the cycle sometimes we do see them tailing off a little bit. So I would expect the year that's similar to the year that they had this year overall.

Operator

And our next question comes from Rich Newitter from Leerink Partners. Please go ahead.

Rich Newitter

Hi thanks for squeezing me in. Kevin, I was hoping just to get some comments on spine. You characterized the market as stable and you’re clearly seeing some nice uptick in the growth rates there yes into product launches.

So my question really is has there been any change or can you give us your updated thoughts on how you view external versus internal investments in this division for you, now that things seem to be on better footing?

Kevin Lobo

Yeah, so I’m really excited about what we're doing organically. So we’ve re-tooled our R&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 three, four 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 likely to 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 in what we've started to build internally, but that's something that will likely happen over time.

Rich Newitter

Okay. Thanks, and then just on extremity again your Foot and Ankle growth, I think you said it was 20% that this business continues to truck along. Any comments on the end markets versus potential share gains that we might have seen in the quarter and specially are you seeing any disruptions from recent M&A in the field? Thanks.

Katherine Owen

Yeah, 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’ve got a dedicated sales focus there, some great products. I wouldn’t call it any disruptions that we’re seeing in the marketplace. I think it’s just continues to be really good execution in a market that has favorable underlying growth dynamics.

Operator

And our next question comes from Joshua Jennings from Cowen & Company. Please go ahead.

Joshua Jennings

Hi, good evening. Thank you. Kevin I just wanted -- hoping you touch on pricing. I think recently 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 any outlook for pricing particularly in Orthopaedics.

Kevin Lobo

Yeah, 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’re exiting '14 there was a lot of concern that the pricing was going to accelerate in '15.

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’ve continued 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.

Joshua Jennings

Great, and 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 its contributing to growth in your Knee franchises and just overall growth for that product line. Thanks a lot.

Kevin Lobo

Thanks. Obviously the Unit market when its put in the context of overall Stryker its very small part of the overall business and I would say it's just -- it’s a steady contributor but there is nothing remarkable to say about it. It’s a good business, but it’s a very small part of our overall need.

Katherine Owen

Are you just talking Josh specifically for MAKO.

Kevin Lobo

No, he got…

Katherine Owen

So for MAKO it’s the first indication. They’re continuing to drive uptake for that as well as with Hip and as we get additional indication, 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 adapt for that as well as the others.

Kevin Lobo

Yeah, but I’m just trying to interrupt sorry that Josh got cut off just to interrupt that the growth to 9% in the U.S. that’s spike in growth. It really wasn’t driven by MAKO or Uni. That’s driven more by the broader Knee business.

Operator

And next question comes from the Matthew O’Brien from Piper Jaffray. Please go ahead.

Matthew O’Brien

Good afternoon. Thanks for taking questions. Just quickly on MAKO again, the number of systems you placed internationally accelerated here in Q4. Was there anything that you can call out as far as maybe a little bit of tipping point in terms of interest in the robotic system, OUS and maybe that could be an even more meaningful contributor here in 2016?

Katherine Owen

No, still the lion's share of the focus and the revenue was coming from the U.S. and get 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.

Kevin Lobo

Yeah, 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 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 Katherine’s point the market that’s the most important by far is going to the U.S. market.

Matthew O’Brien

Okay. And then just to follow-up a little bit on Richard’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?

Kevin Lobo

Well I think you’ve seen our trauma business in the U.S. it's been four years of really terrific growth. So that to me is sustainable when you’re growing at that level. So we’re very pleased.

We’ve rounded our portfolio completely and so that enables us to do complete hospital conversions something that was impossible with Stryker five, six 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 will start to see more of an uptick in Japan as well.

But I would say we are 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 extremities.

Operator

And our next question comes from Jeff Johnson from Robert Baird. Please go ahead.

Jeff Johnson

Thank you. Good afternoon and Bill just once best wishes I was looking back this afternoon I think it has been 14 years that you and I have overlapped. So thanks for all the conversation, all the help over that time.

And so Kevin just wanted to ask just question, one follow-up question here just on the phasing or maybe gaiting of some of the MedTech tax savings.

Is there going to be any timing differential between when the MedTech tax savings start coming and influencing the cost of goods line versus when you start reinvesting those dollars back into SG&A and R&D. Should those match pretty evenly out of P&L or just how to think about the gaiting throughout this year?

Kevin Lobo

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 to write off in the beginning of the year. Our investments as we are targeting right now moving again through 2016, we would also expect to be doing that in reinvestment pretty much consistently throughout the year.

Jeff Johnson

All right. That's all I have.

Kevin Lobo

Sorry, it’s going to be clean from the beginning of the year, from the beginning of this year to 2017. It starts immediately. There is no lag effect which I think had happened prior with the different companies. So for us it's clean. You will see it cleanly in the two years.

Jeff Johnson

Got it. Thank you.

Operator

And the next question comes from Steve Lichtman from Oppenheimer. Please go ahead.

Steve Lichtman

Thanks guys. I actually just have one follow-up on ERP, you talked about the investment on the capital side. Are there any P&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?

Kevin Lobo

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 half or so and then those will be rolled out over the next few years after that.

As far as the cost side of 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 in 2016 here, but moving forward and 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 hundreds of millions of dollars targeted for that. Keep in mind as well that we have price downs in the $150 million to $200 million 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 2016.

Bill Jellison

Yes just to add to that, I would say we do have some expense that will be hitting our P&L, but we’re absorbing that within the guidance that we have provided to you.

Steve Lichtman

Got it, thanks. That’s all I had, thanks guys.

Kevin Lobo

Thank you.

Operator

And our next question comes from Kaila Krum from William Blair. Please go ahead.

Kaila Krum

Hi guys. Just a couple of quick ones for me. The first clearly you all are still emphasizing M&A as a key priority herein. I am just curious if you can touch on how or if those conversations have changed tone, just with some evaluation pull back specifically that we've seen in recent weeks?

Katherine Owen

Yeah, I would say that that shorter time period doesn’t have an impact and as Kevin articulated we continue to be focused on M&A externally. There is going to be periods where it looks or less active depending on timing.

Internally the teams have never been busier and there is no change in the strategy and the recent market disruption is what it is.

Kaila Krum

Okay. And then I guess just to follow-up on an earlier question just around whether or not there is this potential for longer term growth rate to accelerate and then just pairing that with your earlier comments about MAKO and likelihood that 2016 is more of a setup year for 2017, is it fair to assume that overall topline growth could modestly accelerate heading into 2017 from 2015 levels?

Katherine Owen

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, and that's going to be in early stages next year.

So probably premature to start to push towards higher growth rates in this year, but we feel really good with what we've set up for this year and hopefully can build on that in '17.

Kevin Lobo

Yeah 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 two additional platforms, both MAKO and ischemic drove closer to one, but I think can provide let's call them change of factories and growth for the company.

Now whatever happens in '17, or '18, or '19 is there are 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.

Operator

We have no further questions at this time. I'll now turn the conference call over to Mr. Kevin Lobo for any closing remarks.

Kevin Lobo

So thank you all for joining our call. Our conference call for the first quarter 2016 results will be held on April 20. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating and you may now disconnect.

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