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Will Medtronic (MDT) Report Volume Improvement in Q2 Earnings?

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Medtronic plc (MDT - Free Report) is scheduled to report second-quarter fiscal 2021 results on Nov 24, before the opening bell.

In the last-reported quarter, the company’s earnings exceeded the Zacks Consensus Estimate by 195.2%. The company missed estimates in one of the trailing four quarters and surpassed estimates in the other three, the average surprise being 50.1%.

Let’s see how things have shaped up prior to this announcement.

Factors at Play

Medtronic, which has a strong global base, is once again expected to have witnessed a year-over-year reduction in product demand across its core business segments (due to postponement of elective and non-COVID 19 healthcare activities). This might have hurt its fiscal second-quarter revenues.

Medtronic PLC Price and EPS Surprise

Medtronic PLC Price and EPS Surprise

Medtronic PLC price-eps-surprise | Medtronic PLC Quote

However, in a slight relief for investors, following an initial hiccup witnessed during the first few months of the pandemic (months of the fourth quarter of fiscal 2020) the company has been seeing steady month wise trend rebound in its procedure volumes. With gradual opening up of the economy as well as international trade through the fiscal second quarter, we expect to see a significant sequential growth in the company’s business in the second quarter.

At Wells Fargo Securities 2020 Virtual Healthcare Conference in September, the company noted that in the fiscal fourth quarter, there was 25% year-over-year decline in followed by a 17% decline in the fiscal first quarter, reflecting a net sequential improvement of 8%. The company is hopeful about a similar sequential improvement in the fiscal second quarter, which implies 9% year-over-year decline. 

More particularly, we are upbeat about segments involving emergent procedures that have been gaining traction compared to the more deferrable procedures. There should have been faster recovery in the cardiac rhythm business with a lot of new ICD launches. Also, the spine business has gained momentum through the fiscal first quarter, banking on growing demand for the company’s robotics surgeries amid the coronavirus situation. With digital health solutions becoming a major choice for contactless healthcare services, this space is once again expected to have demonstrated robust performance in the fiscal second quarter.

There are certain lines of products, which are treated under more urgent category and might have borne a relatively lesser impact of the pandemic. Among these, the company is particularly hopeful about its Extracorporeal Life Support products, including ECMO machines and disposables, within its Cardiac Surgery business of CVG (Cardiac and Vascular Group); ventilators, pulse oximetry, capnography, and advanced parameter monitoring products within its Respiratory and Patient Monitoring business of MITG (Minimally Invasive Therapies Group), and supplies and consumables within Diabetes Group.

The company is expected to have registered stronger-than-usual demand for its ventilator products. In this regard, the company also collaborated with technology partners and governments to drive new ventilator innovation and production to support COVID-19 patients worldwide. This might have contributed to the company’s second-quarter CVG revenues.

However, these product lines represented just 10% of Medtronic’s pre-COVID-19 global revenues. Further, ventilators and diabetes supplies both generally carry a lower profit margin. This is again a concern as chances of an increase in sales of these products during the second quarter, minimizing the loss of sales in this period, were low.

Q2 Estimates

The Zacks Consensus Estimate for fiscal second-quarter total revenues of $7.05 billion suggests a decline of 8.6% from the prior-year reported number. The consensus mark for earnings of 78 cents per share implies 40.5% decline from the year-ago reported figure.

What Our Quantitative Model Predicts

Per our proven model, a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver an earnings surprise. But this is not the case here as you will see below.

Earnings ESP: Medtronic has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Medtronic currently carries a Zacks Rank #3 (Hold).

Stocks Worth a Look

Here are a few stocks worth considering with the right mix of elements to surpass expectations this earnings season.

Beacon Roofing Supply (BECN - Free Report) has an Earnings ESP of +13.85% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

BJs Wholesale Club Holdings (BJ - Free Report) has an Earnings ESP of +21.3% and a Zacks Rank of 2.

Central Garden & Pet Company (CENT - Free Report) has an Earnings ESP of +57.14% and a Zacks Rank of 2.

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