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Medtronic (MDT) Q3 Earnings Beat Estimates, Margins Down
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Medtronic plc (MDT - Free Report) reported adjusted earnings per share (EPS) of $1.30 for third-quarter fiscal 2023, beating the Zacks Consensus Estimate by 3.2%. However, adjusted earnings declined 4.4% from the year-ago quarter’s figure. Currency-adjusted EPS came in at $1.38 in the quarter.
Without certain one-time adjustments — including restructuring and associated costs, amortization, acquisition-related costs and the new European Union medical device regulation charges, among others— GAAP EPS was 92 cents, down 16.4% from the year-ago quarter’s reported figure.
Total Revenues
Worldwide revenues in the reported quarter grossed $7.73 billion, up 4.1% on an organic basis (excluding the impacts of currency and contribution from the company's fiscal first-quarter acquisition of Intersect ENT) and flat year over year on a reported basis. The top line exceeded the Zacks Consensus Estimate by 3.1%.
Third-quarter organic revenues, according to the company, reflect strong performances in the Cardiovascular and Neuroscience business, in international Diabetes markets and improved product availability across certain businesses. This was partially offset by unfavorable impacts from ventilator sales, given the strong year-ago comparable due to COVID-19 severity, and sales in China, given volume-based procurement (VBP) tenders and the impact of COVID-19 resurgence on procedure volumes.
Q3 in Details
In the quarter under review, U.S. sales (52% of total revenues) were up 3% on a reported basis (up 2% on an organic basis) to $4.06 billion. Non-U.S. developed market revenues totaled $2.29 billion (30% of total revenues), down 6% on a reported basis (up 6% on an organic basis).
Emerging market revenues (18% of total revenues) amounted to $1.37 billion, down 1% on a reported basis (up 5% organically).
Segment Details
The company generates revenues from four major segments, namely Cardiovascular Portfolio, Medical Surgical Portfolio, Neuroscience Portfolio and Diabetes.
In the fiscal third quarter, Cardiovascular revenues increased 6.5% at CER to $2.77 billion, with all three divisions reporting organic growth this quarter.
Cardiac Rhythm & Heart Failure sales totaled $1.43 billion, up 7.5% year over year at CER. Revenues from Structural Heart & Aortic were up 8.8% at CER to $760 million. Coronary & Peripheral Vascular revenues were up 1.5% at CER to $581 million.
In Medical Surgical, worldwide sales totaled $2.14 billion, down 1.6% year over year at CER. The company reported low-single-digit declines in both Surgical Innovations and Respiratory, Gastrointestinal & Renal. Excluding the unfavorable impact of ventilator sales, and sales in China, given the unfavorable impact of provincial VBP tenders, Medical Surgical revenues increased 3% organic.
In Neuroscience, worldwide revenues of $2.25 billion were up 8.5% year over year at CER, driven by a low-double-digit increase in Specialty Therapies and mid-single-digit increases in Neuromodulation and Cranial & Spinal Technologies, all organically.
Revenues in the Diabetes group rose 3% at CER to $570 million. Due to the lack of new product approvals, United States revenues declined in the mid-teens in Q3, offset by high-teens growth in non-U.S. developed markets and low-twenties growth in emerging markets. The company’s international sales were led by the high-teens growth of insulin pumps, mid-thirties growth of continuous glucose monitoring (CGM) products on strong sales of the MiniMed 780G system and the associated increase in CGM attachment rates on the strength of the Guardian 4 sensor.
Margins
Gross margin in the reported quarter contracted 312 basis points (bps) to 65.2% on a 5% fall in gross profit to $5.04 billion.
Research and development expenses were up 2.9% year over year at $688 million. Selling, general and administrative expenses rose 2.1% to $2.62 billion.
Adjusted operating margin contracted 428 bps year over year to 22.5%.
Guidance
Medtronic issued fiscal 2023 fourth-quarter guidance and updated its fiscal 2023 guidance.
Fourth-quarter organic revenue growth is expected in the range of 4.5-5%. Per the FX rate as of the beginning of February, fourth-quarter revenues would be unfavorably affected by approximately $165 million to $215 million.
The Zacks Consensus Estimate for the company’s fiscal Q4 worldwide revenues is pegged at $7.97 billion.
The full-year adjusted EPS projection has been updated to the range of $5.28 to $5.30 (reflecting an increase in the lower end of the earlier-projected band of $5.25 to $5.30), including an estimated 21 cents negative impact from foreign exchange. The Zacks Consensus Estimate for the year’s adjusted earnings is $5.26.
Our Take
Medtronic recorded earnings and revenue beat in the fiscal third quarter. Barring the Medical Surgical group, the company reported year-over-year sales growth in each of its reporting segments organically. The company’s updated 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. The 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 that have announced quarterly results are Cardinal Health, Inc. (CAH - Free Report) , McKesson Corporation (MCK - Free Report) and Hologic, Inc. (HOLX - Free Report) .
Cardinal Health, carrying a Zacks Rank #2 (Buy), reported second-quarter fiscal 2023 adjusted EPS of $1.32, beating the Zacks Consensus Estimate by 16.8%. Revenues of $51.47 billion outpaced the consensus mark by 2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cardinal Health has a long-term estimated growth rate of 11.6%. CAH’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average being 6.4%.
McKesson, having a Zacks Rank #2, reported third-quarter fiscal 2023 adjusted EPS of $6.90, which beat the Zacks Consensus Estimate by 8.8%. Revenues of $70.49 billion outpaced the consensus mark by 0.02%.
McKesson has a long-term estimated growth rate of 10.4%. MCK’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average being 3.4%.
Hologic reported first-quarter fiscal 2023 adjusted earnings of $1.07 per share, beating the Zacks Consensus Estimate by 18.9%. Revenues of $1.07 billion surpassed the Zacks Consensus Estimate by 9.5%. It currently sports a Zacks Rank #1.
Hologic has a long-term estimated growth rate of 15.2%. HOLX’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 30.6%.
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Medtronic (MDT) Q3 Earnings Beat Estimates, Margins Down
Medtronic plc (MDT - Free Report) reported adjusted earnings per share (EPS) of $1.30 for third-quarter fiscal 2023, beating the Zacks Consensus Estimate by 3.2%. However, adjusted earnings declined 4.4% from the year-ago quarter’s figure. Currency-adjusted EPS came in at $1.38 in the quarter.
Without certain one-time adjustments — including restructuring and associated costs, amortization, acquisition-related costs and the new European Union medical device regulation charges, among others— GAAP EPS was 92 cents, down 16.4% from the year-ago quarter’s reported figure.
Total Revenues
Worldwide revenues in the reported quarter grossed $7.73 billion, up 4.1% on an organic basis (excluding the impacts of currency and contribution from the company's fiscal first-quarter acquisition of Intersect ENT) and flat year over year on a reported basis. The top line exceeded the Zacks Consensus Estimate by 3.1%.
Third-quarter organic revenues, according to the company, reflect strong performances in the Cardiovascular and Neuroscience business, in international Diabetes markets and improved product availability across certain businesses. This was partially offset by unfavorable impacts from ventilator sales, given the strong year-ago comparable due to COVID-19 severity, and sales in China, given volume-based procurement (VBP) tenders and the impact of COVID-19 resurgence on procedure volumes.
Q3 in Details
In the quarter under review, U.S. sales (52% of total revenues) were up 3% on a reported basis (up 2% on an organic basis) to $4.06 billion. Non-U.S. developed market revenues totaled $2.29 billion (30% of total revenues), down 6% on a reported basis (up 6% on an organic basis).
Emerging market revenues (18% of total revenues) amounted to $1.37 billion, down 1% on a reported basis (up 5% organically).
Segment Details
The company generates revenues from four major segments, namely Cardiovascular Portfolio, Medical Surgical Portfolio, Neuroscience Portfolio and Diabetes.
In the fiscal third quarter, Cardiovascular revenues increased 6.5% at CER to $2.77 billion, with all three divisions reporting organic growth this quarter.
Cardiac Rhythm & Heart Failure sales totaled $1.43 billion, up 7.5% year over year at CER. Revenues from Structural Heart & Aortic were up 8.8% at CER to $760 million. Coronary & Peripheral Vascular revenues were up 1.5% at CER to $581 million.
Medtronic PLC Price, Consensus and EPS Surprise
Medtronic PLC price-consensus-eps-surprise-chart | Medtronic PLC Quote
In Medical Surgical, worldwide sales totaled $2.14 billion, down 1.6% year over year at CER. The company reported low-single-digit declines in both Surgical Innovations and Respiratory, Gastrointestinal & Renal. Excluding the unfavorable impact of ventilator sales, and sales in China, given the unfavorable impact of provincial VBP tenders, Medical Surgical revenues increased 3% organic.
In Neuroscience, worldwide revenues of $2.25 billion were up 8.5% year over year at CER, driven by a low-double-digit increase in Specialty Therapies and mid-single-digit increases in Neuromodulation and Cranial & Spinal Technologies, all organically.
Revenues in the Diabetes group rose 3% at CER to $570 million. Due to the lack of new product approvals, United States revenues declined in the mid-teens in Q3, offset by high-teens growth in non-U.S. developed markets and low-twenties growth in emerging markets. The company’s international sales were led by the high-teens growth of insulin pumps, mid-thirties growth of continuous glucose monitoring (CGM) products on strong sales of the MiniMed 780G system and the associated increase in CGM attachment rates on the strength of the Guardian 4 sensor.
Margins
Gross margin in the reported quarter contracted 312 basis points (bps) to 65.2% on a 5% fall in gross profit to $5.04 billion.
Research and development expenses were up 2.9% year over year at $688 million. Selling, general and administrative expenses rose 2.1% to $2.62 billion.
Adjusted operating margin contracted 428 bps year over year to 22.5%.
Guidance
Medtronic issued fiscal 2023 fourth-quarter guidance and updated its fiscal 2023 guidance.
Fourth-quarter organic revenue growth is expected in the range of 4.5-5%. Per the FX rate as of the beginning of February, fourth-quarter revenues would be unfavorably affected by approximately $165 million to $215 million.
The Zacks Consensus Estimate for the company’s fiscal Q4 worldwide revenues is pegged at $7.97 billion.
The full-year adjusted EPS projection has been updated to the range of $5.28 to $5.30 (reflecting an increase in the lower end of the earlier-projected band of $5.25 to $5.30), including an estimated 21 cents negative impact from foreign exchange. The Zacks Consensus Estimate for the year’s adjusted earnings is $5.26.
Our Take
Medtronic recorded earnings and revenue beat in the fiscal third quarter. Barring the Medical Surgical group, the company reported year-over-year sales growth in each of its reporting segments organically. The company’s updated 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. The 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 that have announced quarterly results are Cardinal Health, Inc. (CAH - Free Report) , McKesson Corporation (MCK - Free Report) and Hologic, Inc. (HOLX - Free Report) .
Cardinal Health, carrying a Zacks Rank #2 (Buy), reported second-quarter fiscal 2023 adjusted EPS of $1.32, beating the Zacks Consensus Estimate by 16.8%. Revenues of $51.47 billion outpaced the consensus mark by 2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cardinal Health has a long-term estimated growth rate of 11.6%. CAH’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average being 6.4%.
McKesson, having a Zacks Rank #2, reported third-quarter fiscal 2023 adjusted EPS of $6.90, which beat the Zacks Consensus Estimate by 8.8%. Revenues of $70.49 billion outpaced the consensus mark by 0.02%.
McKesson has a long-term estimated growth rate of 10.4%. MCK’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average being 3.4%.
Hologic reported first-quarter fiscal 2023 adjusted earnings of $1.07 per share, beating the Zacks Consensus Estimate by 18.9%. Revenues of $1.07 billion surpassed the Zacks Consensus Estimate by 9.5%. It currently sports a Zacks Rank #1.
Hologic has a long-term estimated growth rate of 15.2%. HOLX’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 30.6%.