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Medtronic (MDT) Q2 Earnings Beat Estimates, Margins Down
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Medtronic plc (MDT - Free Report) reported adjusted earnings per share (EPS) of $1.30 in second-quarter fiscal 2023, beating the Zacks Consensus Estimate by 1.6%. However, adjusted earnings declined 1.5% from the year-ago quarter’s figure. Currency-adjusted EPS came in at $1.31 in the quarter.
Our model projected an adjusted EPS of $1.29 for the second quarter.
Without certain one-time adjustments — including restructuring and associated costs, amortization and restructuring expenses, acquisition-related costs and certain medical device regulation charges, among others— GAAP EPS was 32 cents, down 67% from the year-ago quarter’s reported figure.
Total Revenues
Worldwide revenues in the reported quarter grossed $7.59 billion, up 2% on an organic basis (excluding the impacts of currency) and down 3% on a reported basis. The top line lagged the Zacks Consensus Estimate by 1.7%.
The fiscal second-quarter revenues compares to our own estimate of $7.99 billion.
The Q2 organic revenues, according to the company, reflect slower supply recovery and lower-than-anticipated underlying market procedure volumes in certain businesses and the pricing impact of volume-based procurement in China. These were partially offset by strength in certain product lines, including Transcatheter Aortic Valves (TAVR), Cardiac Pacing, Core Spine in the United States and Diabetes in International.
Q2 in Details
In the quarter under review, U.S. sales (54% of total revenues) were up 2% on a reported basis (up 1% on an organic basis) to $4.07 billion. Non-U.S. developed market revenues totaled $2.16 billion (28% of total revenues), down 13% on a reported basis (up 3% on an organic basis).
Emerging market revenues (18% of total revenues) amounted to $1.36 billion, down 1% on a reported basis (up 4% organically).
Segment Details
The company generates revenues from four major segments, namely Cardiovascular Portfolio, Medical Surgical Portfolio, Neuroscience Portfolio and Diabetes.
In the fiscal second quarter, Cardiovascular revenues increased 4.4% at CER to $2.77 billion, with all three divisions returning to organic growth this quarter, including a high-single-digit increase in Structural Heart & Aortic (SHA) and low-single-digit increases in Cardiac Rhythm & Heart Failure (CRHF) and Coronary & Peripheral Vascular (CPV).
CRHF sales totaled $1.43 billion, up 3.5% year over year at CER. Revenues from SHA were up 8.1% at CER to $757 million. CPV revenues were up 1.7% at CER to $584 million.
For the Cardiovascular segment, we projected $2.92 billion in revenues for the fiscal second quarter.
In Medical Surgical, worldwide sales totaled $2.07 billion, down 3.5% year over year at CER. A low-double-digit decline in Respiratory, Gastrointestinal & Renal (RGR) was partially offset by low-single-digit growth in Surgical Innovations (SI). Excluding the impact of COVID-led strong ventilator sales in the prior year, Medical Surgical revenues dropped 1% at CER.
Our model estimated Medical Surgical revenues of $2.32 billion for the second quarter.
In Neuroscience, worldwide revenues of $2.19 billion were up 5% year over year at CER, driven by a high-single-digit increase in Specialty Therapies, a mid-single-digit increase in Cranial & Spinal Technologies (CST)and Neuromodulation revenues remaining unchanged on a year-over-year basis, all organically.
For the Neuroscience segment, we too projected fiscal second-quarter revenues of $2.19 billion.
Revenues in the Diabetes group rose 3% at CER to $556 million. Due to the lack of new product approvals, United States revenue declined in low-double digits in Q2, offset by mid-teens growth organic growth in non-U.S. developed markets and low-double-digit growth organic growth in emerging markets. The company’s international sales were led by high-teens growth of insulin pumps, low-twenties growth of continuous glucose monitoring (CGM) products and high-single-digit growth in consumable sales.
Our model projected Diabetes revenues of $553.9 million in Q2.
Margins
Gross margin in the reported quarter contracted 160 basis points (bps) to 66.6% on a 5.6% fall in gross profit to $5.05 billion.
Research and development expenses were unchanged year over year at $676 million. Selling, general and administrative expenses inched up 0.1% to $2.62 billion.
Adjusted operating margin contracted 308 bps year over year to 23.2%.
Guidance
Medtronic issued a fiscal 2023 second-half revenue-growth guidance.
Second-half revenue growth is expected in the range of 3.5-4% on an organic basis, accelerating over the first half. Per the FX rate as of the beginning of November, revenue growth in the fiscal year 2023 would be affected by $1.74-$1.84 billion compared with the previous range of $1.4-$1.5 billion impact.
The Zacks Consensus Estimate for the company’s fiscal 2023 worldwide revenues is pegged at $31.52 billion.
The company updated its fiscal 2023 financial guidance for EPS.
Full-year adjusted EPS projection has been updated in the range of $5.25 to $5.30 (a reduction from earlier $5.53 to $5.65), including an estimated 18 cents negative impact from foreign exchange. The Zacks Consensus Estimate for the year’s adjusted earnings is $5.52.
Our Take
Medtronic recorded an earnings beat and a revenue miss for the fiscal second quarter. Barring Medical Surgical group, the company reported year-over-year sales growth in each of its reporting segments organically. The company’s second-half sales outlook for fiscal 2023 assumes considerable organic growth from the year-ago period’s levels, instilling optimism.
However, a substantial decline in Medical Surgical revenues is a concern. Contraction of both margins raises apprehension too. Macroeconomic headwinds related to persistent inflation and unfavorable foreign currency movements continue to challenge the company’s earnings performance.
Zacks Rank and Key Picks
Medtronic currently carries a Zacks Rank #3 (Hold).
The Zacks Consensus Estimate for ShockWave Medical’s EPS is stable at $2.57 for 2022 and rose from $3.42 to $3.56 for 2023 in the past 60 days. SWAV has gained 43.1% so far this year.
ShockWave Medical delivered an earnings surprise of 146.1%, on average, in the last four quarters.
Estimates for AMN Healthcare Services have improved from earnings of $11.26 to $11.43 for 2022 and $8.30 to $8.39 for 2023 in the past 60 days. AMN has declined 1.6% so far this year.
AMN Healthcare Services delivered an earnings surprise of 10.96%, on average, in the last four quarters.
McKesson’s earnings per share estimates have increased from $24.42 to $24.75 for fiscal 2023 and $26.04 to $26.40 for fiscal 2024 in the past 60 days. MCK has gained 55.2% so far this year.
McKesson delivered an earnings surprise of 4.79%, on average, in the last four quarters.
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Medtronic (MDT) Q2 Earnings Beat Estimates, Margins Down
Medtronic plc (MDT - Free Report) reported adjusted earnings per share (EPS) of $1.30 in second-quarter fiscal 2023, beating the Zacks Consensus Estimate by 1.6%. However, adjusted earnings declined 1.5% from the year-ago quarter’s figure. Currency-adjusted EPS came in at $1.31 in the quarter.
Our model projected an adjusted EPS of $1.29 for the second quarter.
Without certain one-time adjustments — including restructuring and associated costs, amortization and restructuring expenses, acquisition-related costs and certain medical device regulation charges, among others— GAAP EPS was 32 cents, down 67% from the year-ago quarter’s reported figure.
Total Revenues
Worldwide revenues in the reported quarter grossed $7.59 billion, up 2% on an organic basis (excluding the impacts of currency) and down 3% on a reported basis. The top line lagged the Zacks Consensus Estimate by 1.7%.
The fiscal second-quarter revenues compares to our own estimate of $7.99 billion.
The Q2 organic revenues, according to the company, reflect slower supply recovery and lower-than-anticipated underlying market procedure volumes in certain businesses and the pricing impact of volume-based procurement in China. These were partially offset by strength in certain product lines, including Transcatheter Aortic Valves (TAVR), Cardiac Pacing, Core Spine in the United States and Diabetes in International.
Q2 in Details
In the quarter under review, U.S. sales (54% of total revenues) were up 2% on a reported basis (up 1% on an organic basis) to $4.07 billion. Non-U.S. developed market revenues totaled $2.16 billion (28% of total revenues), down 13% on a reported basis (up 3% on an organic basis).
Emerging market revenues (18% of total revenues) amounted to $1.36 billion, down 1% on a reported basis (up 4% organically).
Segment Details
The company generates revenues from four major segments, namely Cardiovascular Portfolio, Medical Surgical Portfolio, Neuroscience Portfolio and Diabetes.
In the fiscal second quarter, Cardiovascular revenues increased 4.4% at CER to $2.77 billion, with all three divisions returning to organic growth this quarter, including a high-single-digit increase in Structural Heart & Aortic (SHA) and low-single-digit increases in Cardiac Rhythm & Heart Failure (CRHF) and Coronary & Peripheral Vascular (CPV).
Medtronic PLC Price, Consensus and EPS Surprise
Medtronic PLC price-consensus-eps-surprise-chart | Medtronic PLC Quote
CRHF sales totaled $1.43 billion, up 3.5% year over year at CER. Revenues from SHA were up 8.1% at CER to $757 million. CPV revenues were up 1.7% at CER to $584 million.
For the Cardiovascular segment, we projected $2.92 billion in revenues for the fiscal second quarter.
In Medical Surgical, worldwide sales totaled $2.07 billion, down 3.5% year over year at CER. A low-double-digit decline in Respiratory, Gastrointestinal & Renal (RGR) was partially offset by low-single-digit growth in Surgical Innovations (SI). Excluding the impact of COVID-led strong ventilator sales in the prior year, Medical Surgical revenues dropped 1% at CER.
Our model estimated Medical Surgical revenues of $2.32 billion for the second quarter.
In Neuroscience, worldwide revenues of $2.19 billion were up 5% year over year at CER, driven by a high-single-digit increase in Specialty Therapies, a mid-single-digit increase in Cranial & Spinal Technologies (CST)and Neuromodulation revenues remaining unchanged on a year-over-year basis, all organically.
For the Neuroscience segment, we too projected fiscal second-quarter revenues of $2.19 billion.
Revenues in the Diabetes group rose 3% at CER to $556 million. Due to the lack of new product approvals, United States revenue declined in low-double digits in Q2, offset by mid-teens growth organic growth in non-U.S. developed markets and low-double-digit growth organic growth in emerging markets. The company’s international sales were led by high-teens growth of insulin pumps, low-twenties growth of continuous glucose monitoring (CGM) products and high-single-digit growth in consumable sales.
Our model projected Diabetes revenues of $553.9 million in Q2.
Margins
Gross margin in the reported quarter contracted 160 basis points (bps) to 66.6% on a 5.6% fall in gross profit to $5.05 billion.
Research and development expenses were unchanged year over year at $676 million. Selling, general and administrative expenses inched up 0.1% to $2.62 billion.
Adjusted operating margin contracted 308 bps year over year to 23.2%.
Guidance
Medtronic issued a fiscal 2023 second-half revenue-growth guidance.
Second-half revenue growth is expected in the range of 3.5-4% on an organic basis, accelerating over the first half. Per the FX rate as of the beginning of November, revenue growth in the fiscal year 2023 would be affected by $1.74-$1.84 billion compared with the previous range of $1.4-$1.5 billion impact.
The Zacks Consensus Estimate for the company’s fiscal 2023 worldwide revenues is pegged at $31.52 billion.
The company updated its fiscal 2023 financial guidance for EPS.
Full-year adjusted EPS projection has been updated in the range of $5.25 to $5.30 (a reduction from earlier $5.53 to $5.65), including an estimated 18 cents negative impact from foreign exchange. The Zacks Consensus Estimate for the year’s adjusted earnings is $5.52.
Our Take
Medtronic recorded an earnings beat and a revenue miss for the fiscal second quarter. Barring Medical Surgical group, the company reported year-over-year sales growth in each of its reporting segments organically. The company’s second-half sales outlook for fiscal 2023 assumes considerable organic growth from the year-ago period’s levels, instilling optimism.
However, a substantial decline in Medical Surgical revenues is a concern. Contraction of both margins raises apprehension too. Macroeconomic headwinds related to persistent inflation and unfavorable foreign currency movements continue to challenge the company’s earnings performance.
Zacks Rank and Key Picks
Medtronic currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space are ShockWave Medical , AMN Healthcare Services (AMN - Free Report) and McKesson (MCK - Free Report) , all carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for ShockWave Medical’s EPS is stable at $2.57 for 2022 and rose from $3.42 to $3.56 for 2023 in the past 60 days. SWAV has gained 43.1% so far this year.
ShockWave Medical delivered an earnings surprise of 146.1%, on average, in the last four quarters.
Estimates for AMN Healthcare Services have improved from earnings of $11.26 to $11.43 for 2022 and $8.30 to $8.39 for 2023 in the past 60 days. AMN has declined 1.6% so far this year.
AMN Healthcare Services delivered an earnings surprise of 10.96%, on average, in the last four quarters.
McKesson’s earnings per share estimates have increased from $24.42 to $24.75 for fiscal 2023 and $26.04 to $26.40 for fiscal 2024 in the past 60 days. MCK has gained 55.2% so far this year.
McKesson delivered an earnings surprise of 4.79%, on average, in the last four quarters.