Stryker Corp.'s (SYK) second-quarter earnings rose 9.5% behind surging sales in the company's hospital-products unit, but replacement hip and knee sales barely edged higher as Stryker waits for new products to take off and rides out some disruptions overseas.

Overall sales missed Wall Street expectations due to the weak orthopedic implant sales, but the Kalamazoo, Mich., company still maintained its full-year forecasts for both sales and per-share earnings growth.

Stryker shares declined 2.7% to $49.90 in after-hours trading Tuesday, while orthopedics rival Zimmer Holdings Inc. (ZMH) slipped 2.1% to $54.

Stephen P. MacMillan, Stryker's chairman and chief executive, said the company was particularly pleased with sales across the company's Medsurg business, which includes hospital and surgical supplies. "On the flip side, our reconstructive implants business was below our expectations in the quarter," he said during a conference call with analysts. He added that Stryker's international business struggled more than expected.

He also called a low single-digit increase in U.S. implant sales "discouraging," and that the market looks a little softer, but said he's not concerned about market problems.

Instead, Stryker pointed to some company-specific issues it expects to resolve in coming quarters, such as the fact some new hip products haven't had a big impact yet. Additionally, the company is still feeling the effects from some late 2009 restructuring moves in Europe, where it discontinued certain products and also terminated some distributors.

With the anniversary of those changes coming up, "we are confident in improving performance," Chief Financial Officer Curt Hartman said during the call.

In the latest quarter, Stryker posted a profit of $319 million, or 80 cents a share, up from $291.3 million, or 73 cents a share, a year earlier. Sales grew 7.6% to $1.76 billion, or 6.9% excluding currency changes.

Analysts surveyed by Thomson Reuters expected a profit of 80 cents on revenue of $1.78 billion.

Gross margin rose to 69.3% from 67.2%.

Sales in the MedSurg business jumped 16%, marking a continued rebound from a lull caused by hospitals cutting back on purchases of items like beds and stretchers due to the weakened economy. But sales of orthopedic implants rose just 2.2%. A gain of 1.4% excluding a modest favorable currency impact compares with an RBC Capital Markets Forecast for about 7% growth in the quarter.

Small rival Biomet Inc. (BMET) recently issued fiscal-quarter results that suggested the orthopedics market continues to rebound from a recession-induced lull, but Johnson & Johnson (JNJ) indicated earlier Tuesday that the sector remains under pressure from declining product prices.

MacMillan acknowledged that "headline numbers" may fan worries about the health of the hip and knee markets, but he said Stryker isn't that concerned. He said it takes a while for new products to take hold, and that the overall market was "ever-so-slightly slower in the quarter."

"I think we feel better than the numbers for this particular quarter suggest," and feel good about longer-term trends, he added.

Stryker continued to forecast that sales will increase by 5% to 8% this year, excluding the impact of currency. It also continues to forecast earnings of $3.20 to $3.30 a share.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

(John Kell contributed to this report).
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