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Medtronic (MDT) Q4 Earnings Miss Estimates, Revenues Beat

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Medtronic plc (MDT - Free Report) has reported fourth-quarter fiscal 2020 adjusted earnings per share (EPS) of 58 cents, missing the Zacks Consensus Estimate by 1.7%. Adjusted earnings also plunged 62.3% year over year.

For full-year fiscal 2020, the company reported adjusted EPS of $4.59, which declined 12.1% from the prior-year period. The figure missed the Zacks Consensus Estimate by 2.3%.

Without certain one-time adjustments — including restructuring, amortization expenses and certain litigation charges — GAAP EPS was 48 cents, reflecting a 44.8% decline from the year-ago reported figure.

With respect to full fiscal 2020, GAAP EPS came in at $3.54, indicating a rise of 3.8% from fiscal 2019.

Total Revenues

Worldwide revenues in the reported quarter grossed $5.99 billion, down 25% on an organic basis (excluding the impacts of currency and significant acquisitions, including Titan Spine) and down 26.4% on a reported basis. The top line beat he Zacks Consensus Estimate by a marginal 1.2%.

For full fiscal 2020, worldwide revenues amounted to $28.91 billion, declining 5.4% on a reported basis and 4.2% on an organic basis (considering adjustment for a $418-million negative impact of foreign currency). The figure beat the consensus mark by 0.3%.

In the quarter under review, U.S. sales (48% of total revenues) declined 33% year over year on a reported basis to $2.85 billion. While non-U.S. developed market revenues totaled $2.22 billion (37% of total revenues), depicting a 14% deterioration on a reported basis (down 11% at CER).

Again, emerging market revenues (15% of total revenues) amounted to $929 million, down 28% on a reported basis (down 24% at CER).

Medtronic PLC Price, Consensus and EPS Surprise

Medtronic PLC Price, Consensus and EPS Surprise

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

Segment Details

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

In the fiscal fourth quarter, CVG revenues declined 33% at CER (down 34% on a reported basis) to $2.04 billion, representing the impact of the COVID-19 pandemic and particularly a decrease in deferrable procedure volumes and lower quarter-end customer bulk purchases.

CRHF sales totaled $940 million, down 38% year over year at CER (down 40% on a reported basis). The company witnessed a substantial decline in Arrhythmia Management.

CSH revenues were down28% at CER (down 30% as reported) to $697 million, attributable to noticeable decline in drug-eluting stents and transcatheter aortic valves (“TAVR”).  

APV revenues were down 26% at CER (down 27% on a reported basis) to $367 million. The company witnessed substantial decline in Aortic, Peripheral as well as Venous.

In MITG, worldwide sales totaled $1.93 billion, marking a 12% year-over-year decrease at CER (down14% on a reported basis), due to fall in procedure volumes resulting from the pandemic.

In RTG, worldwide revenues of $1.49 billion were down 33% year over year both on an organic and reported basis. The downside reflected the impact from the pandemic and particularly a decrease in deferrable procedure volumes and fall in quarter-end customer bulk purchases as well as capital equipment purchases.

Moreover, revenues at the Diabetes group decreased 7% at CER (down 9% a year-over-year basis) to $570 million.

Margins

Gross margin in the reported quarter contracted 690 basis points (bps) to 63% on an 8.8% fall in the cost of revenues to $2.26 billion. Adjusted operating margin contracted 1540 bps year over year to 16.1%. Meanwhile, selling, general and administrative expenses fell 9.9% to $2.36 billion, while research and development expenses declined 4.5% to $567 million.

Dividend Update

On May 20, 2020, the board of directors of the company approved a dividend hike for the first-quarter fiscal 2021, which resulted in the quarterly amount of 58 cents per share. This in turn led to an annual dividend of $2.32 per share, up from the previous $2.16 per share, thereby marking Medtronic’s 43rd consecutive year of dividend hike.

Guidance

On account of the uncertainty with respect to near-term financial results resulting from the COVID-19 pandemic, Medtronic has decided not to provide any formal annual or quarterly financial guidance at this moment.

Our Take

Medtronic exited the fourth quarter of fiscal 2020 on a mixed note, with earnings missing the consensus mark but revenues beating the same. The company demonstrated weak performances at CER, backed by dismal performance in all major business segments and geographies.
The company’s performance was primarily impacted from deferred procedures due to the pandemic. Escalating costs and expenses persistently put pressure on its margins. Unfavorable currency movement once again deterred growth in the quarter.

Nonetheless, the company is focusing on the geographical diversification of its businesses, apart from product innovation. Also, the company demonstrated a strong financial position reflected by the dividend hike.

Zacks Rank

Medtronic currently has a Zacks Rank of 4 (Sell).

Key Picks

Some better-ranked stocks in the broader medical space are Aphria Inc. (APHA - Free Report) , Biogen Inc. (BIIB - Free Report) and Eli Lilly and Company (LLY - Free Report) .

Aphria reported third-quarter fiscal 2020 adjusted EPS of 2 cents, beating the Zacks Consensus Estimate of a loss of 4 cents. Net revenues of $64.4 million surpassed the consensus mark by 14.6%. The company carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Biogen currently carries a Zacks Rank #2. It reported first-quarter 2020 adjusted EPS of $9.14, surpassing the Zacks Consensus Estimate by 18.1%. Revenues of $3.53 billion outpaced the consensus mark by 3.2%.

Eli Lilly reported first-quarter 2020 EPS of $1.75, outpacing the Zacks Consensus Estimate by 12.9%. Revenues of $145.3 million surpassed the consensus estimate by 6.3%. The company currently sports a Zacks Rank #1.

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