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Medtronic (MDT) Beats on Q1 Earnings, Ups FY20 EPS Guidance

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Medtronic plc (MDT - Free Report) reported first-quarter fiscal 2020 adjusted earnings per share (EPS) of $1.26, beating the Zacks Consensus Estimate by 6.8%. Adjusted earnings also rose 7.7% year over year.

After adjusting the foreign exchange headwind of 2 cents, adjusted EPS increased 9% year over year.

Without the adjustments, net earnings were 64 cents per share, reflecting an 18.9% decline from the year-ago quarter.

Total Revenues

Worldwide revenues in the reported quarter grossed $7.49 billion, up 3.5% at constant exchange rate or CER (up 1.5% on a reported basis). The top line also exceeded the Zacks Consensus Estimate by 1.1%. Revenues at CER in the quarter include adjustments for a $146-million negative impact from foreign currency.

Medtronic PLC Price, Consensus and EPS Surprise

 

Medtronic PLC Price, Consensus and EPS Surprise

Medtronic PLC price-consensus-eps-surprise-chart | Medtronic PLC Quote

 

In the quarter under review, U.S. sales (52% of total revenues) inched up 1.4% year over year on a reported basis to $3.92 billion. While non-U.S. developed market revenues summed $2.38 billion (32% of total revenues), depicting a 1.2% dip reportedly (up 2.6% at CER). Again the emerging market revenues (16% of total revenues) amounted to $1.19 billion, up 7.5% reportedly (up 12.5% at CER).

Segment Details

The company currently generates revenues from four major groups, namely Cardiac and 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 the Surgical Innovations (SI) and the Respiratory, Gastrointestinal & Renal (RGR) divisions. RTG consists of the Spine, Brain Therapies, Specialty Therapies and Pain Therapies segments while the Diabetes Group incorporates the Intensive Insulin Management (IIM), Non-Intensive Diabetes Therapies (NDT) and Diabetes Service & Solutions (DSS) divisions.

In the fiscal first quarter, CVG revenues improved 1.4% at CER (down 0.7% as reported) to $2.79 billion, driven by mid-single digit growth in CSH and low-single-digit growth in APV, offset by a low-single digit decline in CRHF, all at CER.

CRHF sales totaled $1.38 billion, down 1.2% year over year at CER (down 3.1% as reported). The mid-single digits’ growth in Arrhythmia Management was countered by a low-double digit fall in Heart Failure.

CSH revenues were up 5.2% at CER (up 2.6% as reported) to $941 million, driven by mid-teens’ growth in transcatheter aortic valves. The company reported low-single digits’ year-over-year deterioration in drug-eluting stents sales in the quarter.

APV revenues registered 1.7% growth at CER (down 0.2% as reported) to $467 million, boosted by high-single-digits’ growth in Venous and mid-single digits’ rise in Aortic, both partially offset by high-single digits’ decline in Peripheral.

In MITG, worldwide sales totaled $2.1 billion, marking a 4.8% year-over-year increase at CER (up 2.3% on a reported basis), banking on mid-single digit growth in both SI (Surgical Innovations) and RGR (Respiratory, Gastrointestinal & Renal).

In RTG, worldwide revenues of $2.01 billion were up 4.6% year over year at CER (up 3.2% as reported) on low-double digit growth in Brain Therapies, mid-single digit growth in Specialty Therapies and low-single digit growth in the Spine business, offset by mid-single digit declines in Pain Therapies.

Moreover, revenues at the Diabetes group increased 5.4% at CER (up 3.5% as reported) to $592 million.

Margins

Gross margin in the reported quarter contracted 173 basis points (bps) to 68.4% on a 7.4% rise in the cost of revenues to $2.37 billion. Adjusted operating margin expanded 193 bps year over year to 26.7%. Meanwhile, there was a 2% slip in selling, general and administrative expenses (to $2.54 billion) while research and development expenses edged up 0.3% (to $587 million). Other income in the quarter under discussion totaled $22 million against the $151-million expense a year ago.

Fiscal 2020 Guidance Updated

The company has reiterated its fiscal 2020 revenue outlook. For the full year, organic revenue growth is expected to be 4%. Adverse currency fluctuation is projected to affect the top line by 0.8-1.2%. The current Zacks Consensus Estimate for revenues is pegged at $31.44 billion.

Fiscal 2020 adjusted EPS view has been raised to the range of $5.54-$5.60 (earlier range was $5.44-$5.50). Currency fluctuation is expected to have a 10-cent adverse impact on the full-year adjusted EPS. The Zacks Consensus Estimate of $5.47 for the metric is below the guided range.

Our Take

Medtronic exited the first quarter of fiscal 2020 on a promising note with better-than-expected numbers. The company has demonstrated improved performances at CER, banking on growth in all major business segments and geographies. This in turn, highlighted sustainability across groups and regions in addition to displaying a successful integration and achievement of synergy targets. Apart from product innovation, the company is focusing on geographical diversification of its businesses.

On the flip side, escalating costs persistently put pressure on the gross margin. Unfavorable currency movement once again deterred growth during the quarter.

Zacks Rank & Other Key Picks

Medtronic has a Zacks Rank #2 (Buy). Some other top-ranked stocks having posted solid results this earning season are Integra LifeSciences Holdings Corporation (IART - Free Report) , Baxter International Inc. (BAX - Free Report) and Intuitive Surgical, Inc. (ISRG - Free Report) , each carrying the same favorable Zacks Rank as Medtronic.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Integra LifeSciences delivered second-quarter 2019 adjusted EPS of 73 cents, beating the Zacks Consensus Estimate by 12.3%. Revenues of $383.6 million also surpassed the Zacks Consensus Estimate by 2.7%.

Baxter delivered second-quarter 2019 adjusted EPS of 89 cents, which trumped the Zacks Consensus Estimate of 81 cents by 9.9%. Revenues of $2.84 billion too outpaced the Zacks Consensus Estimate of $2.79 billion by 1.9%.

Intuitive Surgical reported second-quarter 2019 adjusted EPS of $3.25, which beat the Zacks Consensus Estimate of $2.85. Further, revenues of $1.1 billion topped the Zacks Consensus Estimate of $1.03 billion.

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