It has been about a month since the last earnings report for Medtronic (MDT Quick QuoteMDT - Free Report) . Shares have lost about 2.4% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Medtronic due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Medtronic Q2 Earnings Top Estimates, Margins Contract

Medtronic reported adjusted earnings per share 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.

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 earnings per share 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 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.

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.

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.

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 earnings per share.

Full-year adjusted earnings per share 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.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -9.35% due to these changes.

VGM Scores

Currently, Medtronic has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Medtronic has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Medtronic belongs to the Zacks Medical - Products industry. Another stock from the same industry, NuVasive , has gained 6.1% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

NuVasive reported revenues of $295.28 million in the last reported quarter, representing a year-over-year change of +9%. EPS of $0.54 for the same period compares with $0.32 a year ago.

NuVasive is expected to post earnings of $0.49 per share for the current quarter, representing a year-over-year change of +22.5%. Over the last 30 days, the Zacks Consensus Estimate has changed -5.6%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for NuVasive. Also, the stock has a VGM Score of A.