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Medtronic (MDT) Beats Q1 Earnings, Revenues Closely In-Line

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Medtronic plc (MDT - Free Report) reported financial results for first-quarter fiscal 2017. Adjusted earnings per share (EPS) in the reported quarter came in at $1.03, 2 cents ahead of the Zacks Consensus Estimate and up 1% year over year.

Adjustments in the quarter primarily included certain litigation as well as restructuring charges, intangible asset amortization, acquisition-related items and certain tax adjustments.

Without these adjustments, the company reported net income of 66 cents per share, up 15.8% year over year.

 

Medtronic Inc. (MDT - Free Report) EPS BNRI & Surprise Percent - Last 5 Quarters | FindTheCompany

Total Revenue

Worldwide revenues in the reported quarter grossed $7.166 billion, up more than 5% on a constant currency, constant weeks (CCCW) basis (down 1.5% as reported). The top line remained almost in line with the Zacks Consensus Estimate of $7.175 billion. Foreign currency fluctuation adversely affected Medtronic’s first-quarter revenues by $7 million.

In the quarter under review, U.S. sales (55.8% of total sales) declined 3% year over year to $4.002 billion or increased in the low-single digits at CCCW. Non-U.S. developed market revenues totaled $2.231 billion (31.1% of total sales), a mid-single digit increase at CCCW (up 2% as reported). Emerging market experienced low-double digits revenue growth (flat year over year as reported) to $933 million at CER.

Segment Details

The combined company currently generates revenues from four major groups, viz. Cardiac & Vascular Group (CVG), Minimally Invasive Therapies Group (MITG), Restorative Therapies Group (RTG) and Diabetes Group.

CVG comprises Cardiac Rhythm & Heart Failure (CRHF), Coronary & Structural Heart (CSH), and Aortic & Peripheral Vascular divisions (APV). MITG includes both the Surgical Solutions division and the Patient Monitoring & Recovery (PMR) division. RTG includes the Spine, Neuromodulation, Surgical Technologies and Neurovascular segments, while the Diabetes Group includes the Intensive Insulin Management, Non-Intensive Diabetes Therapies and Diabetes Services & Solutions divisions.

Revenues from CVG improved in mid-single digits at CCCW basis (or down 2% as reported) to $2.518 billion, driven by strong, balanced growth across all divisions.

 

MEDTRONIC Price, Consensus and EPS Surprise

 

MEDTRONIC Price, Consensus and EPS Surprise | MEDTRONIC Quote

 

CRHF sales outperformed the market with year-over-year growth in mid-single digits on a CCCW basis (down 3% as reported) to $1.334 billion. This came on the back of the strength of Amplia MRI, Compia MRI Quad CRT-D, Evera MRI ICD and Micra TPS pacemaker; mid-thirties growth in AF Solutions andlow-double digits growth in AF Solutions.

CSH revenues grew at mid-single digits on a CCCW basis (down 3% as reported) to $762 million on the back of high-twenties growth in transcatheter valves owing to strong customer adoption of the CoreValveEvolut R. While Coronary remained a drag with mid-single digits revenue decline, drug-eluting stents grew in the mid-single digits outside the U.S. driven by Resolute Onyx in Europe and emerging markets.

APV revenues registered high-single digits growth on CCCW basis(up 2% as reported) to $422 million, driven by high-single digit growth in Aortic.

In MITG, worldwide sales reached $2.424 billion, mid-single digits increase year over year on CCCW basis, on the back of mid-single digits growth in both Surgical Solutions and PMR.

In RTG, worldwide revenues of $1.772 billion were a mid-single-digit increase year over year on CCCW basis (down 2% as reported), owing to strong growth in Brain Therapies and Specialty Therapies, as well as improved results in the U.S. Spine mitigating a decline in Pain Therapies.

Revenues from the Diabetes group went up by high-single digits on CCCW basis (or up 2% as reported) to $452 million on account of strong, broad-based performance across its three divisions.

Margin

Gross margin during the reported quarter expanded 221 basis points (bps) to 68.4% on a 1.8% increase in gross profit to $4.905 billion. Adjusted operating margin expanded 220 bps year over year to 26.3%, with a 0.9% decline in selling, general and administrative expenses (to $2.43 billion); a 0.4% fall in research and development expenses (to $556 million); and a 36.1% slash in Other income to $39 million.

Guidance

Medtronic has maintained its fiscal 2017 revenue outlook and EPS guidance. Management anticipates adjusted diluted EPS in the range of $4.60−$4.70 representing growth of 12%−16% on a CCCW basis. This takes into consideration the estimated negative impact of foreign currency translation, as well as the benefit from the extra selling week in the company`s first-quarter fiscal 2016. This EPS growth guidance remains consistent with the company`s long-term, double digit constant currency EPS growth expectation. The Zacks Consensus Estimate of $4.66 remains above the mid-point of the guided range.

In fiscal 2017, given the current trends, the company once again expects revenues to grow in the range of 5% to 6% on a CCCW basis. This also remains consistent with the company`s long-term, mid-single digit constant currency revenue growth expectation. The Zacks Consensus Estimate for revenues remains at $29.88 billion for fiscal 2017.

Our Take

Medtronic’s first-quarter earnings edged past the Zacks Consensus Estimate while revenues came close to our expectation. The consolidated company demonstrated strong segmental performances at CCCW basis, displaying successful integration and achievement of synergy targets.

All four major business groups contributed to solid top-line growth on CCCW basis which, according to the company, highlighted sustainability across groups and regions. We are also encouraged with the solid growth trend successfully continuing in the U.S. as well as the healthy global acceptance of its advanced therapies. Apart from product innovation, the company is currently focusing on geographical diversification of its businesses.

The company was successful in generating significant free cash flow, which management plans to reinvest in future growth opportunities while also providing strong returns to its shareholders.

Zacks Rank

Currently, Medtronic holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical sector are NuVasive, Inc. , Quidel Corp. (QDEL - Free Report) and GW Pharmaceuticals plc . All the three stocks sport a Zacks Rank #1 (Strong Buy).

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