Medtronic plc (MDT) on Q2 2021 Results - Earnings Call Transcript
Ryan Weispfenning: Good morning, and welcome to Medtronic's Fiscal Year 2021 Second Quarter Earnings Video Webcast. I am Ryan Weispfenning, Vice President and Head of Medtronic Investor Relations. Before we start the prepared remarks, I am going to share with you a few details to keep in mind about today's webcast. Geoffrey Martha: Hello, everyone, and thank you for joining us today. Our Q2 results were significantly stronger than Q1 and came in well ahead of our expectations. Our recovery from the depths of the pandemic has been faster than expected and we are now approaching year-over-year growth. Now while we continue to monitor COVID resurgence around the globe, healthcare systems are by and large better prepared and patients are more willing to seek the care they need. Obviously, there's some near-term uncertainty, but I am encouraged by the steps we have taken over the past year to position Medtronic, not only for continued recovery, but to maximize our performance over the medium and long-term. Now building on the strength of our pipeline, we're going on the offensive and winning share in several of our businesses. We're investing in opportunities to create and disrupt big markets and we're seeing the results. Karen Parkhill: Thank you, Geoff. Our second quarter organic revenue of $7.6 billion declined 1.5% and adjusted EPS of $1.02 declined 22% from last year. However, compared to the prior quarter, our revenue increased 18% and adjusted EPS grew by 65% as our end markets continued to recover. In fact, we continue to see sequential revenue improvement each month and despite the number of COVID cases rising in many of our markets, October was better than September in all of our groups and regions with the exception of China, given the impact of the national tender in drug-eluting stents. MITG led the way with its growth rate increasing by over 20 points in both Surgical Innovations and Respiratory GI and Renal. SI benefitted from increased elective procedure volumes in Europe and the United States driven in part by elective procedures that were delayed from the spring and early summer. Our RGR's improvement came from strong ventilator sales as well as from GI patient monitoring and renal care products. Across MITG we had growth in a number of our businesses in the second quarter including advanced energy, lung health, airways, ventilators and patient monitoring. CVG and RTG also delivered double-digit improvements from the first quarter with increased procedure volumes and share capture and several businesses returned to growth from the prior year. In CVG, we grew in pacing, CRT-Ds, TYRX, aortic and drug-coated balloons. And in RTG, we grew and DBS, neurovascular, pelvic health and China Orthopedics. On the P&L, while we continue to see the expected deleveraging year-over-year, the recovery in our business is evident in the sequential improvement in our adjusted margins, over 300 basis points in our gross margin and nearly 600 basis points in our operating margin. Our better than expected revenue flowed through to the bottom line resulting in EPS well ahead of expectations. Turning to our balance sheet. Our financial position remained strong. In the quarter, we completed another euro debt offering €6.25 billion and used the proceeds to reduce our U.S. dollar debt and prefund our March euro debt maturities, driving roughly $80 million of additional annualized savings. This was our third euro transaction in the past year and a half. Combined, we have issued over $18 billion and our portfolio now sits with a weighted average maturity of over 12 years and a weighted average coupon of less than 2%, among the lowest of the large cap issuers and the lowest among our competitors in medtech. As I shared with you at our Investor Day last month, we remain focused on investing, both organically and inorganically through tuck-in acquisitions and minority investments to drive our long-term growth strategies. Last month, we announced the acquisition of Ai Biomed to expand our ENT portfolio. In addition, we closed our acquisition of Avenu Medical and Peripheral Vascular earlier this month and we announced the completion of our Medicrea acquisition in spine last week. We expect both our organic and inorganic investments to fuel a longer term revenue growth acceleration, ultimately creating strong returns for our shareholders, supplemented by our strong and growing dividend. We are an S&P Dividend Aristocrat having increased our dividend for 43 years, and our current yield of 2.1% places as in the upper quintile of S&P 500 Healthcare Companies. Now turning to our outlook, particularly with the rising cases of COVID around the world, the impact to our business remains difficult to predict. So we will continue to not provide our typical guidance. That said, I do want to give you a sense of the recovery ahead. While it is still early in our third quarter, we've seen our average weekly sales track ahead of the same weeks in the second quarter. So while there are pockets of more restrictions and delayed procedures around the globe, the impact to us has thus far been limited. As we've said before, hospitals are better equipped now to handle COVID patients and remain open to serve non-COVID patients. And over time and with education, patient fear is not as heightened as it was last spring and early summer. While there is still uncertainty ahead, if the recovery trend continues as it has to-date, our third quarter revenue could be flat to slightly up year-over-year on an organic basis. And we would continue to expect to return to normal organic revenue growth on a two-year stacked basis by our fiscal fourth quarter. By group next quarter, MITG growth could be in the low single digits, a little lower than the second quarter, given the benefit we had from strong ventilator sales. RTG and Diabetes should deliver improvements from the second quarter with a decline in the low single digits and CVG should be roughly flat as we continue to recover and take share. On the P&L, while we are continuing to invest in our product pipeline and launches during the pandemic, we still expect sequential operating leverage as we recover. For both our gross and operating margins, we would expect a couple points of improvement in the third quarter versus the second and we continue to expect to return to more normal operating margins in the fourth quarter. Regarding currency, assuming rates hold constant, the tailwind on revenue in the third quarter should be similar to the second and the full year benefit could be roughly a $150 million. On the bottom-line, we'd expect a $0.04 headwind per quarter for the remainder of the year. As I wrap up, while the pandemic could impact our outlook, our ability to continue to invest in our pipeline, develop our markets and execute on product launches will allow us to outpace our markets. I'm proud of the hard work from our employees this year and I'm excited about the impact we are having on millions of patient’s lives around the world. With our competitive spirit, and focus on being bold, we will be at the forefront of the recovery. Back to you, Geoff. Geoffrey Martha: Okay, thank you, Karen. Now to wrap up, I hope you're seeing the strong execution that our organization is delivering. I want to take a moment to thank our employees across the globe for the great performance they have collectively produced this quarter. To sum up the second quarter, we're improving our growth, advancing our pipeline and winning share and we're doing all of this while operating in the midst of a global pandemic, and while we make bold and comprehensive changes to our operating model. And one last note regarding our operating model, we're making solid progress on decentralizing and de-layering our businesses. We're empowering our 20 operating units, gaining greater visibility into our end markets, upping our competitive game and holding our business leaders more accountable. We're leveraging the strengths of our enterprise by centralizing manufacturing and certain core technology development. We've increased our focus on allocating capital to our best opportunities and we're supplementing this with an increased cadence of tuck-in acquisitions. And we're enhancing the culture of this company by increasing our competitiveness and being bold, adding these on top of all the great attributes of our mission driven culture. We expect this to lead to more innovation, accelerate our growth, and unlock a lot of value for our shareholders. So with that, let's now move to Q&A. Operator: It’s now time for the Medtronic earnings call Q&A session, where Medtronic executives will answer live questions from the sell-side analysts covering the company. Please also be advised that this Q&A session is being recorded. For today's session, Geoff Martha and Karen Parkhill are joined by Mike Coyle, EVP and President of the Cardiovascular Portfolio; Bob White, EVP and President of the Medical Surgical Portfolio; Brett Wall, EVP and President of the Neuroscience Portfolio; and Sean Salmon, EVP and President of the Diabetes Operating Unit. I'll now turn it over to the moderator, Ryan Weispfenning. Please go ahead. Ryan Weispfenning: Great, thank you. Let's first go to the line of Bob Hopkins from BoA Securities. Bob? Bob Hopkins: Great, thank you very much and good morning, everybody. So the first question I'd love you guys to comment on is some of the geographic results you showed in the quarter, because I found the breakdown really interesting. Specifically, I'd love to hear your thoughts on, it looks like Europe was up in the quarter, China was down in the quarter, maybe comment on some of the trends that are driving those results in Europe and China? And specifically on the China tender, was that worse than you thought in terms of the final outcome there? And was that tender contemplated when you gave the long-term guidance that you provided at the Analyst Day? Thank you. Karen Parkhill: Yes, thank you, Bob, for that question. We were pleased with the geographic results that we saw. You are right, Europe was up and certain parts of Asia were up. China was down, but that was really due to the national tender. Absent the impact of the national tender, China would have been in strong growth territory. And on the tender, it was really close to what we expected. We – it was hard to predict, but we were pleased to be one of the five finalists in the tender. So we expect to be gaining share or gaining share and volume as a result of that. Geoffrey Martha: Yes, just Bob on the tender, I say, I think it is in the -- over the next couple of quarters, it's going to be a headwind, because we're going to have a lot of volume increase here matter of fact that, but it's going to be offset by the price decrease. And so, but we view it as strategic over time, because this is going to be one of the tip of the spear, if you will, for more aggressively taking our commercial organization into the lower tier cities, the rural cities in China, tier two, tier three and it will also help us pull through other products around coronary today plus in the future with TAVR and renal denervation. So, not happy about the short-term impact. I think long-term, this is, like I said, a strategic and we'll see the volume, the Chinese Government has been reaching out to us and working with us to make sure we're prepared, because they're expecting us to have a pretty dramatic increase in volume here. So we'll see how this plays out, but we do think that over the next couple of quarters it's more of a headwind than a tailwind. Bob Hopkins: Okay. And then just really quickly for Karen, your comments on current trends, I appreciated those. I just wanted to be clear. So are you saying that what you're seeing so far this quarter is not worse than what you saw in October in terms of year-over-year growth? Karen Parkhill: That's correct, Bob. What we've seen in the first couple of weeks in November is higher than what we saw in the similar weeks in the second quarter. That said, the first few weeks of a quarter don't necessarily make a trend. So we'll be closely watching any impact from the COVID surge. I would say that if these trends continue, and there's only a limited impact from the COVID surge, we do expect or our revenue could be flat to slightly up in the third quarter. Bob Hopkins: Thank you very much. Ryan Weispfenning: Great. Thank you, Bob. Let's next go to the line of David Lewis from Morgan Stanley. David, please go ahead. David Lewis: Good morning. Thanks for taking the question. Just two quick ones from me. I'll start with Karen. So Karen, the revenue numbers in the quarter and the forward momentum is very impressive. Did the drop through on margins, Karen, in the second quarter was actually weaker than the first quarter? So let me just talk about where are those investments going? How should we think about drop-through into the back half of the year? And where are we on the cost plan? And then I have a quick follow-up. Karen Parkhill: Yes, thanks for that question, David. Clearly, we have been focused on investing for the long-term through this pandemic. And as a result, our margins are a little bit more depressed than normal. We have said that we expect to be back to more normal margins in the fourth quarter all along and we continue to expect that. In terms of the drop-through of the additional revenue, we did have some period expensing on the manufacturing front as well, similar to last quarter. We expect that to not be a headwind next quarter. And we continue to invest below the gross margin line and particularly as we're focused on, driving the right commercial launches of some of our new products. And so, we're focused on investing appropriately, and ultimately getting our margins back to normal by the fiscal fourth quarter. David Lewis: Okay, very helpful. And then, Geoff, maybe for you. I mean, there's been $1.6 billion of balance sheet deployment over the relatively near-term, over the next six to 12 months, should we expect a similar cadence of deals? Should we expect sort of higher or lower? And then if Karen, if there's any sort of quantification across that $1.6 billion in terms of what the revenue impact could be here over the next six months or so that'd be super helpful? Thanks so much. Geoffrey Martha: Yes, David, on the M&A, it's obviously it's hard to predict, right? I mean, but, I would suspect a similar cadence of these tuck-in types of deals. Again, it is hard to predict, but it is, like I said, part of our strategy, it's something that we're looking to do to augment our R&D. Karen Parkhill: Yes. And David, in terms of the revenue contribution, much of what we bought this year are really early stage tuck-ins and it goes along the lines of grow, what we buy don't buy growth. So these acquisitions are really expected to be larger contributors to revenue in the years ahead. The combined expected revenue contribution for the rest of this fiscal year is small. And we'll obviously evaluate whenever revenue from an acquisition becomes meaningful to a business, we will certainly adjust it from our organic results until we anniversary that. So, the one that we may end up adjusting for starting in next quarter is Companion Medical, because it could be impactful to the diabetes business alone, but certainly not to the total company. David Lewis: Thanks. Ryan Weispfenning: Thank you, David. Let's next go to the line of Robbie Marcus at JPMorgan. Please go ahead, Robbie. Robert Marcus: Great. Thanks for taking the question and congrats on a nice quarter. I was looking at diabetes, which to me is one of the businesses that could have the most upside potential if your turnaround plan works out. I was hoping you could walk us through maybe the next six to 12 months in terms of new product cadence, how that should impact numbers? And also, I know you've been deferring pump sales for a long time waiting for 780G and the upgrade program. How do we expect that to play out into numbers over the next 12 to 18 months when 780G hits the U.S.? Geoffrey Martha: Sure, Robbie, I will turn that one over to Sean with one edit, not if it happens, but when the turnaround happens, so Sean will talk to that. Sean Salmon: Okay, great. Thanks for the question, Robbie. So over the next six to 12 months, really the focus is going to be on rolling out the new pump platforms. We're off to a really, really good start for the European launch of the 780G. So we're in, I think, now 12 countries. We will continue to roll those out. As time goes on here, the 770G as just said just started its initial launch in the U.S. and we've had really strong demand for that, as we've got a number of these upgrade pathways in place. So the pathway upgrade from existing 670G as well as the next tech pathway to get people to come into the new pumps. We've seen an increase in the proportion of patients as new starts in the U.S. as compared to just replacements of in-warranty patients coming out of the warranty and, of course, Companion Medical is going to be a big focus. We've got now the integration with our CGM in real-time, which is a big deal. As we improve the sensor experience, that's going to get to be even more of a big deal. But more importantly, we've now trained up and have the entire sales force with this in their bag now in the U.S., as opposed to just the small sales force that came with Companion acquisition. So I think the near term, those are the priorities, but we will look forward into what's next, obviously, the 780G launch for the U.S. is a big deal. The Zeus sensor globally would be a really important driver for us, and then a smaller product, but an important one. We just started a limited launch in Finland, it's for a seven-day infusion sets, this allows you to wear this infusion set for almost twice as long as what is normally required. And that product we raised in the U.S. we just locked the database on that. So we should expect that to be a part of the mix going forward. Of course, all of this flows. So you have hardware out there, it's upgradable by software to 780 and beyond. You've got the compatibility designed in for the sensor pipeline as well as extended wear infusion sets. So I think we're setting up for a really nice cadence of products that will traverse into growth. Robert Marcus: And maybe just a quick follow-up Karen, there's a lot of nuance as we look at fiscal '22, which is where I think a lot of the Street is focused in terms of valuation. So anything you could sit here today, I know it's impossible to call the recovery trends, one vaccine set, but anything that you see in models that stand out that you want to point people to as they think about modeling into fiscal '22, whether it's on the top line or whether the expense cadence? Thanks. Karen Parkhill: Yes, thanks for that question, Robbie. It's early. Obviously, we're still five months away from starting our fiscal '22 and we're really working on our plans right now. Plus, the pandemic makes it a little more difficult to forecast. So I would say, we'll wait to give more color or guidance on FY '22, likely as we normally do on our fourth quarter earnings call, but clearly, you can expect that our growth should be higher than normal next fiscal year off of the depressed space and because we continue to launch our pipeline of products. Robert Marcus: Thanks. Ryan Weispfenning: Thank you, Robbie. Let's next go to the line of Vijay Kumar from Evercore ISI. Vijay, please go ahead. Vijay Kumar: Hi, guys, can you hear me? Ryan Weispfenning: We can. Vijay Kumar: Okay, excellent. So I guess, I had two quick questions, one financial and one on I guess on diabetes. On I guess the financial part, when we're looking at this year-on-year organic growth, could you perhaps quantify what the impact from the move to consignment sales, the move, the shift away from bulk order was in the quarter because it looks like ex-dose impacts, perhaps organic year-on-year was in the low singles territory, positive territory. I just want to make sure my math is correct. And I think I heard you say Karen, Q-on-Q you expect margins to be up a couple of hundred basis points. I mean, if revenues are almost flat to up in 3Q, perhaps talk about any margin headwinds for 3Q? Karen Parkhill: Sure Vijay. Let me start with the conversation on bulks. We mentioned last quarter that the vast majority of the booking impact was behind us, but there are still pockets in certain businesses where we continue to look at odd year-over-year comparisons because of bulks. I would say biologics and spine is one of those areas, TAVR is another, but if you look at the total company, the impact from bulks is largely behind us. In terms of the quarter-over-quarter margins, we said that we expect both gross and operating margins to be up a couple of points sequentially from the second quarter, and so if you look at the Street models particularly on gross margin, it could be a little higher than what than what the Street currently has. Is that answering your question? Vijay Kumar: Yes, it did. I guess, on -- because I guess I was confused on the TAVR commentary on share, kind of market share being stable sequentially and if I look at your closest peer they were up mid singles new guys from minus air charges, I just want to make sure how you get to the sequential stable share on that? Geoffrey Martha: Yes, I know Vijay, I know and I understand it's a little difficult to track. Well, why don't we have Mike Coyle, walk us through that math there? Michael Coyle: Thanks for the question, Vijay. So we would estimate that the overall TAVR market for the quarter was on a constant currency basis up around 2% and as you just noted, our reported numbers on a revenue basis, year-over-year are down about six. But when you basically consider the U.S. market dynamic of the de-loading activity that we, that's been taking place where essentially we have shifted away from doing bulk purchasing and have actually moved customers on to consignment who essentially want to hold inventories. If you look year-over-year, our hospital held inventories of TAVR product are probably down around $25 million. So that basically, when you correct for that, in terms of just the year-over-year comparisons were essentially flat in terms of our global, sort of TAVR market. So that's the difference between sort of the year-over-year versus the quarterly comparisons. As we look in the quarter, sequentially from last quarter, we essentially held market share in the United States, on a year-over-year basis our case volumes were essentially flat with the prior year, which was a marked improvement over what we saw during Q1. And so, as we look forward, we're very confident about our ability to take share for a number of reasons. Obviously, the most important of those being the recent announcements from Boston Scientific here late in the quarter, their decision to essentially remove Lotus from the marketplace. And in addition from the TCT meeting the Scope2 data that basically had the accurate Neo product failing its non-inferiority endpoint going to head-to-head trial versus . So that gives us really, I think, an opportunity to take share that they have had where we have been disproportionately hit year over, over prior quarters. And of course, just going forward, the hemodynamic benefits of the product really are encouraging in terms of how the customers are receiving that. We had another great TCT meeting here in terms of new data flow supporting the benefits of hemodynamics from lower pacemaker rates, the TAVI data was very encouraging in terms of direct comparisons of balloon, expandable self expanding valves. And, we continue to roll out our custom overlap technique for lower pacemaker rates. So all of that we think is going to be very helpful for us to continue to take sequential share. Now, the third quarter a year ago, we saw a pretty big dip in share that we've been sort of clawing back and so you're going to see it in the overall year-over-year numbers once we have anniversary that Q3 event and of course, as we get into Q4 we have normalized prior year comparisons for the hospital inventory adjustments that I just talked about. So by the time we get to Q4, we think it will look very similar whether looking quarter-over-quarter or year-over-year in terms of share dynamics. Vijay Kumar: That's helpful. Mike and Geoff, one quick one for you on diabetes. I think, you spoke about share gains, are you seeing anything on one, you look at the 3Q guidance, download signals and implies some improvement or 2Q what's driving that? And are you seeing anything on the pump market side? We're hearing some chatter about, customers delaying pump upgrades, waiting for the tide pool algorithm to come -- waiting for the tide pool algorithm, so perhaps talk about the diabetes pump market? Thank you. Geoffrey Martha: Sure Vijay, I’ll have Sean, why don’t you jump in on that one? Sean Salmon: Yes, so Vijay, I think that there's a point of smaller proportion of the market that is waiting for the tide pool to become available. So I think the capabilities of that algorithm are really not anything advantaged over what that we have in the pipeline is certainly what's available currently in the market. So I think the idea that this rather is pump, and you can kind of pick your components is appealing to some and to others, quite frankly, having to chase two or three companies around in order to kind of get your questions answered, track down what your challenges may be, is just not the kind of experience a lot of people are looking for. They kind of want a one stop shop where they can get everything they need and all their questions answered in a single place and that's, of course, the advantage that will accrue to us as we get our pipeline of products out there. So I'd say it's really much, it is more of a niche opportunity and really not a big focus. I don't see a lot of people waiting for it. Vijay Kumar: That's helpful. Thanks, guys. Ryan Weispfenning: Thanks, Vijay. Let’s next go to the line of Larry Biegelsen from Wells Fargo. Please go ahead, Larry. Larry Biegelsen: Good morning, guys. Thanks for taking the question. Can you hear me, Ryan? Ryan Weispfenning: We can. Yes, thanks. Larry Biegelsen: Great. All right, great. One for Karen and one for Geoff. So Karen, you talked about operating margins returning to normalized levels in Q4. How do you define that? Is that the 30% we saw in fiscal Q3, 2019 or should we be thinking about 29% for fiscal the full year fiscal 2019 and any comments on consensus EPS for Q3 and Q4 based on the commentary you've given on this call? And I have one follow-up for Geoff. Karen Parkhill: Great, thanks, Larry, for the questions. In terms of normal operating margins in Q4, we're thinking about that pre-COVID for the full year, so roughly around the 29% level. And then in terms of consensus, we clearly talked about revenue in the third quarter if trends continue and there's limited impact to COVID being around the flat to slightly up, which is higher than where consensus currently is and that would flow through down to margins as we've discussed approximately 200 bps sequentially higher from the second quarter and so flow through to the bottom-line. So that's what I would say on the Q3 consensus and Q4 because we've said all along that we expect to be back to more normal growth on a two-year stack basis and more normal margins consensus is roughly right there already. Larry Biegelsen: Perfect, thanks, Karen. And Geoff, on China, I heard your comments on the drug-eluting stent tender and the pricing there. China is an important market for you roughly 5% of revenues I believe. How concerned are you that, what happened with drug-eluting stents could spill over to other areas of your business? How contained do you feel that is? Thanks for taking the questions. Geoffrey Martha: Thanks, Larry, for that one. Yes, China is a strategic market for us and we are watching this tender process closely. Anyway, sorry, here there is a beep on the line here and hopefully that will stop here, hopefully. Anyway, in terms of China, we do think it's more contained for us at least for a couple of reasons. One, the coronary stent business is one of the few businesses at Medtronic that does have less differentiation, I would say in the industry. The industry itself, the products aren't as differentiated as we see in some of our other segments. And the other dynamic that there was unique here is that 80% of the drug-eluting stent market in China was already local, so they had alternatives there. And those two dynamics, the differentiation, the lower differentiation, and a robust local market, that doesn't exist in most of the segments that we compete in, in China. So we do think it is we don't have a lot of exposure to that type of impact from a tender going forward. And matter of fact, this is where our diversification helps us. We've got a lot of growth levers in China and I do believe it is, still remains a bigger, a big growth opportunity despite some of these tender headwinds. Larry Biegelsen: Thanks, Geoff. Geoffrey Martha: Thank you, Larry. Ryan Weispfenning: Let's next go to the line of Matt Taylor at UBS. Matt, please go ahead. Matt Taylor: Thanks, Ryan, can you hear me okay? Ryan Weispfenning: We can. Matthew Taylor: Perfect. Okay, so I just wanted to ask a question about progression of utilization. We've seen some stronger recovery here than a lot of us might have expected with the current conditions. We've had a lot of good news around vaccines lately. And I'm just wondering conceptually, as we go through next year, can you talk about how you expect that to impact recovery and could we see a bolus or elevated demand after the vaccines take hold or do you think that we've kind of lost some of these patients in the shuffle and that you won't see that kind of a resurgence? Geoffrey Martha: Thanks for the question, Matt. On that one, right now, like we do believe to the extent that there is pressure from the second wave or this spike, if you will, it is limited, as Karen said, both in depth and time. Like I mentioned, pre-vaccine hospital CEOs, we talk to them all the time, dozens a week and their narrative has remained the same in that they've learned a lot of lessons and how to safely continuous elective cases despite COVID-19 and they have been able to treat COVID patients more efficiently and they believe that even in this spike, that they'll be able to continue elective cases. We are seeing some pressure in some areas, but like I said before and then Karen mentioned earlier, we do believe that's limited. Now, in terms of your question, once we get through once the vaccine is out there, and it's like pretty much an all clear signal for patients that are considered that may have been holding back, I haven't heard anybody talking about like a bolus of patients. I think we have worked through by and large, there is a little bit of a backlog out there still, but we have worked through a lot and in our more elective areas, if you will, but by and large we've worked through a lot of that, and that backlog is relatively small. And we're starting to get back to more of a kind of steady-state run rate here. And so, given all that, I wouldn't expect a big bolus. But, we could be surprised that this is, I wish there were a little more science around some of the numbers there, but we are trying to quantify as much as the feedback we're getting, but I haven't heard anything about a bolus of patients waiting out there for the next year. Matthew Taylor: Okay, thanks for the thoughts Geoff. Ryan Weispfenning: Thank you, Matt. Let's next go to the line of Rick Wise of Stifel Nicolaus. Rick, please go ahead. Rick Wise: Good morning, Ryan. Good morning, everybody. I'll just ask one question, Geoff, you were very clear at the Analyst Day about your focus on accountability, execution, innovation, the potential for improved growth and margins, et cetera, et cetera, et cetera. It is, I guess, just two aspects of that as my question is, should we attribute, how much the excellent quarterly performance we're just looking is tied to your initiatives, your energy that you're bringing, your new vision you're bringing to Medtronic? And second, maybe just at a high level, just talk to us about the progress you've made, where you feel like you are and how we should think about the master plan going forward? Thanks so much. Geoffrey Martha: Thanks for the question, Rick. And it would be nice to say that the master plan had that big of an impact so quickly, but I think in reality, it is the product launches, that's what's really driving the near term results, like I said, the product portfolio, and the pipeline rather, is the best we've ever had. And we've got products launching now, which we listed a lot of those and then we've got products, over the next 18 to 24 months. And the disruptive nature of those products in the next 18 to 24 months, in and of itself has created a lot of energy across the company as people can feel the near term impact of these products and things like, we mentioned in the commentary here our ablation business or cryoablation business being with this new England Journal of Medicine data being now a frontline therapy for AFib and taking that information and that opportunity and making the most of it. That type of approach is getting people excited. So I think right now, it's really about the product launches. Over time, though, I think the changes that we made, the decentralization, the unnesting of these operating units, these 20 operating units, and pushing them to be bold, to think big, be bold, and maximize their opportunity and you know what, don't be afraid to fail or I mean, we don't want to fail, but if we're too conservative, we're not going to take advantage of these massive opportunities in front of us like RD and like renal denervation, like soft tissue robot, like the example I just gave for our ablation business. AFib is a massive under diagnosed problem here and we've got all kinds of therapies for this. So that is creating an energy across the company that I anticipate over time will translate into, I'd say above market growth and really expand the number of patients that we're serving. And I'll end on this, we talk about, we touch or impact the lives of two patients every second and that's a pretty amazing statistic. But when you do the math, it's like 80 million people a year. Well, there's over 7.5 billion people in the world and so I'd like to kind of reframe that question is like, why are we doing so few, given the technology that we have, and really expand that patient base? And that kind of approach is creating a lot of new thinking and energy that I think over time will take hold here, because we've got big plans here. And but what you're seeing now is good, but I think we can do better over time. Rick Wise: Thank you, Geoff. Ryan Weispfenning: Thanks, Rick. Let's next go to the line of Matt Miksic of Credit Suisse. Matt, please go ahead. Matt Miksic: Hi, thanks. Can you hear me all right? Ryan Weispfenning: Yes. Matt Miksic: Terrific. So, it's just a follow up on some of the current trends commentary that you've given, we're all watching hospitalizations, and they have increased and I'd say it sounds like your commentary was perhaps a little bit more optimistic and constructive, despite the surge than some folks were expecting, which is great. And then the numbers were terrific here in the second quarter, but maybe if you could talk a little bit about how you're thinking about hospitalization trends in these conversations you're having and maybe when, and if, at what level they do become a little bit of a concern? And then I have one follow-up. Geoffrey Martha: I think basically, Matt, what we're hearing is that, two things and it's and most of our feedback, I'd say 75% of it is coming from the U.S. hospitals, and then the rest from Europe, I'd say. But in the United States, in particular, the two things that would have to happen, again given everything we said about the lessons learned and the commitment to hospitals, the commitment to keep elective cases going. The two things that could derail them is literally they run out of space, from so many COVID patients, and it becomes like a real estate issue within the hospital, that would impact obviously elective cases. They would be deprioritized there. And in some cases, we're seeing that we're getting closer to that level of capacity. So that's what we're watching. And the second would be some sort of statewide mandate that could happen, it's in today's political climate, I think it'd be foolish to try to predict anything. But, some sort of statewide mandate could happen as well. So those are the two things and I think the hospital CEOs and executives are more worried about the first thing. And some of the larger systems have the luxury that are more regional of moving patients around, both COVID patients and elective patients, you can move elective procedures from one hospital to the next in some of these larger systems. So that's -- they're really doing their best to manage those two things. But that's why we're, I guess, cautiously optimistic that the impact of this second wave will be limited, that and with the optimism of the vaccine news is another driver here. Matt Miksic: That's helpful. Thanks for that. And then, just to follow up on your comment on the New England Journal, article and presentation at AHA, the first line therapy for paroxysmal, can you talk about maybe how you expect that how investors should expect that to sort of show up in the numbers, is there penetration pathway here that we can expect to hear more about over the next year or so? Geoffrey Martha: I'll maybe have Mike provide a little more details on that data? Michael Coyle: Sure, Matt, currently, because no ablation therapy is approved for first line therapy, a patient has to fail a series of anti-arrhythmic drugs before they become eligible, and we'd estimate that's about a two-year, period of time that physicians will essentially titrate any rhythmic medications and basically, the data that was shown in the New England Journal said less than half the patients who actually go down that path will wind up being symptom free. So essentially, you're taking a large portion of the entire diagnosed portions of the patients with symptomatic atrial tibrillation, and you're delaying them two years from coming in, and losing a lot of them to follow up there. And, of course, 45% of them will just stay on the medications. By basically showing that cryoablation will have 75% of those patients symptom free in a year if we can push that into first line, we not only accelerate the curve, but obviously a lot of patients who wound up on anti-arrhythmic will then essentially not require them because they become symptom free with ablation. So, there's obviously a lot of education that has to take place at the referral channel level. We think these data will be very compelling to be able to have that take place. Obviously, we need FDA approval of the labeling indication which, as Geoff mentioned, we would expect to be in our next fiscal year, but we're very excited about being able to outreach to that referral community with a much better solution for the patients. Matt Miksic: Thanks so much Michael. Geoffrey Martha: Yes, this is like a trend that we're starting to see where our kind of definition of market development is expanding to not just to the specialist physicians around the world that we're used to dealing with, but to more the general practitioners and in this case, even and just general cardiologists, and to the patients themselves. And so this is a muscle that this kind of hybrid b2c b2b, b2c, this kind of go-to-market, this muscle of market development we need to develop, because there's other areas across the company that we're seeing this. Obviously, diabetes is more in this camp. And this is something that Medtronic, even a lot of Medtech historically haven't done, but I do think it's a muscle we need to develop here. Matt Miksic: That’s great, thanks. Geoffrey Martha: Thanks, Matt. Ryan Weispfenning: Let's next go to the line of Chris Pasquale at Guggenheim. Chris, please go ahead. Chris Pasquale: Thanks. One quick one on diabetes and then one on CVG for diabetes, Sean could just clarify the expected timing of the 780G U.S. launch is there may still be some uncertainty about how you go about the filing strategy there? Sean Salmon: Yes, sure. So the situation we have, I think, as you probably already know is that the FDA's division that regulates the diabetes sector is also involved in a lot of the COVID diagnostics work. So it's really been a resource drain on their part for medical reviewers in particular. So at their request, we're pulling together a lot of parts to that submission, including the pediatric data and not separating that out from just the adult data, so one submission for all patients, as well as the integration of the Zeus sensor into that package. So that's the summary of the package, how we can consolidate down to fewer component parts that need to be reviewed, which will add efficiency for them and the time to market for us for the entire package. Chris Pasquale: Okay, but in terms of when we should expect to have 780G available for U.S. patients, any sense for when that will be? Sean Salmon: That's hard to predict the review cycle time that we're intending to submit that in this quarter. Chris Pasquale: Okay, that's helpful, thank you. And then just quickly on the Chinese tender, the impact there in the back half of the year, you characterized the $26 million this quarter as reserve, which to me implies a pulling forward of the headwind, but then you also talked about it continuing to be an issue on a go forward basis. So how much of the sort of annual impact of that was recognized this quarter versus still to come? Thanks. Karen Parkhill: Yes, thanks for that question, Chris. The reserve impact from the China tender is really because we've got product in the dealer channel, and we needed to compensate for the price that will be impacted in the dealer channel as soon as the tender is effective, so that's what's going on there. In terms of go forward, obviously, the price go forward is 95% lower and so that will continue to impact us, but it was a bit of a larger impact now, since we had to do the reserve as well as the shorter impact for the quarter. Chris Pasquale: Thanks. Ryan Weispfenning: Thanks, Chris. Let's take one more question and go to the line of Kaila Krum at Truist. Kaila, please go ahead. Kaila? Kaila Krum: Can you guys hear me okay? Ryan Weispfenning: I can, yes. Please go ahead. Kaila Krum: Yes, perfect. Thanks, Ryan and thanks guys for taking our questions. So you guys had mentioned that you're talking to dozens of hospital CEOs every week. So I'm just curious what you're hearing in terms of their appetite for capital spending, and particularly as they are budgeting for calendar 2021? So any additional color there you can add would be helpful, thank you. Geoffrey Martha: Yes, so capital, it is obviously the capital budgets in hospitals are pressured, but we're finding two things that are helping us out. One is that our capital tends to be, is tied to, for them profitable elective procedures like in spine and so that helps a lot. And the other thing is providing flexible financing options is the second one. So although there is some pressure on just general capital, when that capital is supporting an elective procedure that is profitable and critical to the hospital's financial recovery, that's really helping and so they're continuing to have these conversations with us, and they're continuing to buy capital and I think, talking to our spine division the other day, they anticipate, the Mazor sales to get back to normal levels here, so which is evidence of what I just said. And the second thing that's helping is, we're worked with a number of financing companies to provide various different financial or flexible financial solutions for the hospitals. So those two things have really helped us. And although that it's, there is some pressure, it's not like maybe you might see with general imaging or something like that. Kaila Krum: Great, thanks so much for taking the questions. Ryan Weispfenning: Thanks, Kaila. I'll ask Geoff to conclude with his remarks, Geoff? Geoffrey Martha: Okay, and thanks everybody for the questions and the great engagement and we really appreciate your support and the continued interest in our company. We will, we hope that you'll join us for our Q3 earnings broadcast, which we anticipate holding on February 23, where we'll update you on our continued quarterly progress. So thanks for tuning in today stay healthy and safe. And for those in the U.S., I'd like to wish you and your families a very Happy Thanksgiving and have a great day, everybody.MDT Ratings Summary
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Medtronic Exceeds Q1 Earnings Forecasts and Raises Full-Year Guidance for 2025
Medtronic (NYSE:MDT) reported first-quarter earnings on Tuesday that exceeded analyst expectations and boosted its guidance for fiscal 2025.
The medical device company posted earnings per share (EPS) of $1.23 for Q1, surpassing the consensus estimate of $1.20. Revenue for the quarter was in line with forecasts at $7.9 billion.
Medtronic's adjusted gross margin for the quarter stood at 65.9%, slightly lower than the 66.4% recorded in the same period last year but higher than the 65.5% analysts had predicted. The adjusted operating margin came in at 24.4%, matching expectations but marginally down from 24.8% in the previous year.
Looking forward, Medtronic raised its fiscal 2025 non-GAAP EPS guidance to a range of $5.42 to $5.50, slightly up from the previous projection of $5.40 to $5.50. This reflects an anticipated EPS growth of 4% to 6% for the year. Additionally, the company increased its forecast for organic revenue growth to a range of 4.5% to 5%, up from its earlier estimate of 4% to 5%.
Medtronic's Earnings Overview for Q4 Fiscal Year 2024
- Medtronic exceeded EPS estimates of $1.45, and reported revenue of $8.59 billion, surpassing expectations.
- The company demonstrated operational efficiency with a 4.5% increase in adjusted earnings per share for the full fiscal year, despite a decrease in adjusted EPS for the quarter.
- Revenue growth was driven by strong performance across multiple business segments, with significant regulatory approvals highlighting Medtronic's innovation and growth potential.
Medtronic (NYSE:MDT), a global leader in medical technology, services, and solutions, reported its earnings for the fourth quarter of fiscal year 2024 on Thursday, May 23, before the market opened. The company's earnings per share (EPS) of $1.46 slightly surpassed the estimated EPS of $1.45, showcasing Medtronic's ability to exceed analyst expectations. Additionally, Medtronic reported revenue of approximately $8.59 billion, exceeding the estimated revenue of about $8.45 billion. This performance indicates a positive outcome for Medtronic in the recent May earnings report, reflecting the company's resilience and strategic growth initiatives in the face of industry challenges.
Despite facing a decrease of 7.5% in adjusted EPS from the same quarter in the previous year, Medtronic's financial results highlight its operational efficiency and market adaptability. The company's GAAP EPS, which includes various one-time adjustments such as restructuring and associated costs, was significantly lower at 49 cents, down 44.3% from the year-ago quarter. However, for the full fiscal year, Medtronic reported adjusted earnings of $5.53 per share, an increase of 4.5% from the previous year, beating the Zacks Consensus Estimate by 6.3%. This demonstrates Medtronic's ability to navigate through fiscal challenges while still delivering growth.
Medtronic's revenue growth was attributed to strong performance across several of its businesses, including Cranial & Spinal Technologies, Diabetes, Cardiac Pacing, and Surgical. The company's worldwide revenues for the quarter were $8.59 billion, a slight increase of 0.5% on a reported basis and 5.4% on an organic basis from the year-ago period, exceeding the Zacks Consensus Estimate by 1.8%. The total revenues for fiscal 2024 reached $32.36 billion, up 3.6% from the previous year and slightly above the Zacks Consensus Estimate by 0.5%. This revenue growth, coupled with strategic regulatory achievements such as receiving U.S. FDA approval for its Evolut™ FX+ TAVR system and Inceptiv™ closed-loop spinal cord stimulator, underscores Medtronic's broad-based, durable growth across various segments.
Furthermore, Medtronic's financial health is evident in its cash flow from operations for FY24, which was $6.8 billion, a 12% increase from the previous year. The company's free cash flow rose by 14% to $5.2 billion, demonstrating its strong cash generation capabilities. Medtronic has been proactive in returning value to its shareholders, with $5.5 billion returned in FY24, including $1.6 billion through net share repurchases in Q4 alone. The increase in its quarterly dividend to $0.70 per share, marking the 47th consecutive year of dividend increases, reflects Medtronic's commitment to shareholder value and its confidence in the company's financial stability and growth prospects.
In summary, Medtronic's latest earnings report for the fourth quarter of fiscal year 2024 highlights the company's ability to exceed expectations, navigate challenges, and continue its growth trajectory. With strategic investments in innovation, a focus on operational efficiency, and a commitment to returning value to shareholders, Medtronic is well-positioned for sustained success in the healthcare sector.
Medtronic Shares Climb Following Q3 Beat
Shares of Medtronic (NYSE:MDT) climbed more than 3% pre-market today following the announcement of third-quarter results that exceeded analyst expectations, prompting the company to uplift its financial outlook for the 2024 fiscal year. Medtronic reported an adjusted earnings per share (EPS) of $1.30, which was $0.04 above the analyst consensus of $1.26. Moreover, the company's quarterly revenue reached $8.1 billion, outperforming the anticipated $7.95 billion by analysts.
Medtronic updated its forecast for organic revenue growth in fiscal 2024, increasing it from the initially projected 4.75% to a range of 4.75% to 5%. Furthermore, the adjusted EPS outlook for 2024 was adjusted upwards from the previous range of $5.13 to $5.19 to a new range of $5.19 to $5.21, attributed to the strong performance in the third quarter.
Medtronic Double Downgraded at UBS
Medtronic (NYSE:MDT) shares have been double-downgraded to Sell from Buy by UBS due to anticipated near-term sales and EPS downside risk. The new price target is $79 per share, a significant drop from the prior target of $127. The analysts believe that Medtronic's ongoing transformation will require more time, and lack confidence that the company can achieve sustainable mid-single-digit top-line growth and consistent operating margin improvement.
UBS predicts that Medtronic's sales will grow at a CAGR of 3.8%, which is lower than the consensus estimate of 4.8%. Additionally, UBS' survey shows minimal diabetes share gains. It expects that in 2024 and 2025, the company's EPS will be lower than consensus estimates by low-single-digits and high-single-digits, respectively, mainly due to lower sales. While Medtronic may gain marginal share in some businesses, such as Evolut FX in TAVR (Transcatheter Aortic Valve Replacement), the company is losing share in other areas such as cryo, peripheral, and diabetes.
Medtronic Reports Q3 Beat & Raises Guidance
Medtronic (NYSE:MDT) reported its Q3 results, with both EPS of $1.30 and revenue of $7.7 billion coming in better than the Street estimates of $1.27 and $7.54 billion, respectively.
Better-than-expected revenue was driven by beats across all of its business segments, with headwinds abating in ventilator sales and product availability.
The company raised its 2023 guidance, now expecting FX rates to negatively impact Q4 revenue by $165-215 million and guided to 2023 EPS of $5.28-$5.30 (prior guidance of $5.25-5.30), which includes an $0.21 FX headwind as of current rates.
The company continues to expect expense reductions to help offset headwinds e.g. inflation, interest, FX, and taxes. Additionally, the company noted it expects organic growth of 4.5-5.0% in Q4.
Medtronic Reports Q3 Beat & Raises Guidance
Medtronic (NYSE:MDT) reported its Q3 results, with both EPS of $1.30 and revenue of $7.7 billion coming in better than the Street estimates of $1.27 and $7.54 billion, respectively.
Better-than-expected revenue was driven by beats across all of its business segments, with headwinds abating in ventilator sales and product availability.
The company raised its 2023 guidance, now expecting FX rates to negatively impact Q4 revenue by $165-215 million and guided to 2023 EPS of $5.28-$5.30 (prior guidance of $5.25-5.30), which includes an $0.21 FX headwind as of current rates.
The company continues to expect expense reductions to help offset headwinds e.g. inflation, interest, FX, and taxes. Additionally, the company noted it expects organic growth of 4.5-5.0% in Q4.
Medtronic Downgraded at RBC Capital, Shares Down 4%
Medtronic plc (NYSE:MDT) shares closed more than 4% lower yesterday after RBC Capital downgraded the company to Sector Perform from Outperform and lowered its price target to $89 from $102.
According to analysts, there is significant dissatisfaction among investors regarding the way the company's management has handled several issues (e.g. warning letter, supply impact, RDN). Additionally, they believe that the company's recovery has been slower than expected and that it is facing ongoing challenges due to macroeconomic conditions. While the situation may improve in the future, it is unlikely that the company will perform significantly better than its competitors, due to the loss of credibility it has experienced.
The company cut its fiscal 2023 organic growth outlook from approximately 5% in Feb to 1.4-1.6% in Nov due to supply constraints as well as slower recovery in certain sub-segments such as neuromodulation, TAVR, basic coronary PCI, and other general surgery procedures. Full-year EPS outlook was lowered throughout the year as well due to lower organic sales growth, and pressures related to FX, inflation, and supply. The company now expects 2023 EPS to be in the range of $5.25-5.30 (down 5.7-6.6% year-over-year).
