Medtronic plc (MDT) on Q4 2021 Results - Earnings Call Transcript
Ryan Weispfenning:
Geoffrey Martha: Hello everyone and thank you for joining us today. We reported a strong quarter this morning. The expectations that we set for Q4 on the last earnings call were seen by many in the financial community as aggressive. Yet we executed and we delivered, beating Street estimates on revenue, margins, and EPS. Most of our end markets are returning to near-normal pre-COVID growth. While some geographies are lagging due to COVID's persistence, momentum built throughout the quarter and we feel confident about the year ahead. Karen will give you more color on our guidance later in this call, but the key takeaway is that we’re guiding above Street estimates on the top line while simultaneously accelerating our investments at the front end of major product launches in surgical robotics and renal denervation. Now in robotics and renal denervation we’re investing in our marketing, customer service and support capabilities to maximize these product launches. We’re also investing in R&D broadly with meaningful programs across the company. As we talked about at our Investor Day last year, we have a packed pipeline across our businesses with a number of meaningful opportunities and our top priority is to invest in our business and pipeline to take advantage of those opportunities. As a result, we plan on increasing our R&D spend by more than 10% in FY ’22, the biggest dollar increase in R&D spend in our company’s history, all while delivering strong EPS growth. We’re ultra-focused on accelerating our topline growth and we’re making incremental investments to put us in a place to drive a sustainable, higher level of growth than you have historically come to expect from Medtronic. Before I get into some details on the fourth quarter, I’d like to reflect on the past year, my first as CEO. It’s certainly been a difficult environment with the pandemic, but our organization has risen to the challenge and achieved so much in such a short period of time and under unique circumstances, now to become cliché for companies to say that they’re expecting to emerge from the pandemic stronger as I’ve heard this phrase echoed from many of our competitors, but you’ve been hearing this from us from day one, and I think you’ll find it hard to name another company in our space that has done more to emerge from this pandemic stronger than Medtronic. Whether it was investing in our employees, helping our customers and patients, sustaining R&D programs or changing our operating model, and putting in place a new Medtronic mindset culture, this past year was transformational for us.
Karen Parkhill: Thank you, Geoff. Our fourth quarter organic revenue increased 32% and adjusted EPS increased 159%, significant growth, as we anniversary the downturn we experienced at the start of the pandemic last year. Our end markets continue to recover from the impact of COVID, and we continue to execute on our strategy, and launch new products, resulting in a sequential revenue increase of 5% and sequential adjusted EPS growth of 16%. Our adjusted EPS was $0.08 better than consensus with $0.02 on higher operating profit and $0.06 from a lower than estimated tax rate. Our recovery from the COVID resurgence in December and January improved throughout the quarter as expected. March was stronger than February and April was stronger than March. We were particularly pleased with the strength of the last several weeks of the quarter, which we believe sets us up nicely for the start of our new fiscal year. From a geographic standpoint, we had strong 47% growth in the United States. Outside of the U.S., our developed markets grew 11% with continued pockets of COVID resurgence in parts of Western Europe, Japan and Canada. Our emerging markets grew 41% driven by China growth in the low 90's. Our adjusted margins continue to improve sequentially with 120 basis points on our gross margin and 190 basis points on our operating margin. Our adjusted nominal tax rate was 9.6%, better than initially estimated given a favorable jurisdictional mix of profits, along with certain one-time benefits. We've said throughout this past year that the actions we're taking during the pandemic to not only support our employees and our customers, but also continue investing would impact our free cash flow. That said, we're pleased that we generated $4.9 billion of free cash flow, converting 81% of our non-GAAP earnings into cash. In the quarter, we repaid in full, a 300 billion yen term loan that was issued earlier in the fiscal year and our year-end cash position remains above 10.5 billion. You can be assured that despite the pandemic, Medtronic continues to be in a strong financial position to drive our long-term strategies. Reflecting the confidence that we and our Board have in the future growth of this company, this morning, we announced that we are increasing our dividend by 9%. We are an S&P Dividend Aristocrat, having increased our dividend now for 44 years, and the dividend is an important part of the total return we generate for our shareholders. We also restarted our share repurchase program in the fourth quarter with a focus on covering dilution from our stock based compensation. Now turning to our guidance. We're confident in the continuing procedure recovery around the globe, and the resilience of our end markets, and as a result, today reinstate giving formal guidance. We expect strong organic revenue growth acceleration in fiscal 2022 to 9%, plus or minus a point above current street consensus. And while the impact of currency is fluid, if recent exchange rates hold, foreign currency would have a positive impact on full year revenue of $400 million to $500 million. By segment, we expect Cardiovascular and Neuroscience to grow 10% to 11%, Medical Surgical to grow 6% to 7%, and Diabetes to grow 3% to 4%, all on an organic basis. You'll remember that last year we had an extra week in our fiscal calendar and these growth rates have not been adjusted for that extra week, given the offset that we have from customer bulk purchases. As a result, we do not intend to adjust our organic growth in fiscal '22 for the extra week in fiscal '21. In the first quarter, we're comfortable with Street consensus on revenue, which implies organic growth of 17% to 18% and a currency tailwind between $200 million and $250 million at recent rates. By segment, we expect Cardiovascular to grow 14% to 15%, Medical Surgical to grow 18% to 19%, Neuroscience to grow 25% to 26% and Diabetes to be flat. With so many big opportunities in front of us, we're prioritizing R&D and commercial investments with growth above and beyond what you would see in a normal year. And we're allocating this capital across our businesses to our best opportunities. As you know, two of our largest opportunities are Surgical Robotics and Renal Denervation. We're purposely making significant investments in them to ensure we fully capitalize on the multi-billion dollar opportunities ahead. Just to give you a sense, when you combine the facts that it's early in the revenue cycle of these two programs, with our heavy investment, we are planning for an operating loss of approximately $400 million next fiscal year from these combined programs. Yet it is important to note that even with these kind of investments, we're still expecting operating margin expansion. This is the power of Medtronic's business model that we can simultaneously make large scale investments in some of the most important future technology areas in med tech, cover the dilution and deliver strong profitability and returns for our shareholders. On the bottom line, we expect non-GAAP diluted EPS in the range of $5.60 to $5.75 in fiscal '22 which includes a benefit of $0.10 to $0.15 from currency at recent rates. For the first quarter, we expect EPS of $1.31 to $1.34 above current Street consensus of $1.29 to $1.31 and first quarter EPS would include a currency tailwind of about $0.3 at recent rates. Before I hand it back over to Jeff, I'd like to take a moment to recognize all of the employees across Medtronic who scaled mountains this year, leaning in to deliver a great year under difficult circumstances. I'm proud to be part of such a terrific team and I couldn't be more excited about the opportunities ahead of us. Back to you, Geoff.
Geoffrey Martha: Okay, thank you, Karen. Now I'd like to close by emphasizing that there's a lot of energy here at Medtronic and our momentum is building. You are seeing us perform better than our competition. We've executed in the short term and we're investing for the long-term. We've accomplished a lot in FY '21 and this is a good start, but our expectations are higher. What will truly differentiate us is accelerating and delivering sustained revenue growth at or above our markets, not just over a year or two but over the next decade. We have incredible programs in our development pipeline with robust expected financial returns. We're developing the next generation of medical devices that incorporate technologies like artificial intelligence, big data, and miniaturized electronics. These programs have the potential to truly change the future of medicine. When we look at the opportunities ahead of us and how we expect to translate these into strong returns for our shareholders, the future is bright. And finally, to our 90,000 employees around the world, thank you for everything that you've accomplished this past year. I'm sure they would agree with me when I say if there's one thing you should take away from today's call, it's at Medtronic we're just getting started. With that, let's now move to Q&A. We'll try to get to as many analysts possible, so we ask that you limit yourself to one question. If you have additional questions, you can reach out to Ryan and the Investor Relations team after the call. By the way it's worth noting that the IR Magazine recently recognized our Investor Relations as the best of all companies in the United States, an award we're very proud to receive, as it was the result of voting from hundreds of investors and analysts, and we look forward to continuing to provide you with transparent communication and a high level of service. With that, Francesca, can you please give the instructions for asking a question?
A - Francesca DeMartino: Lastly, please be advised that this Q&A session is being recorded. For today's session, Geoff Martha and Karen Parkhill are joined by Sean Salmon, EVP and President of the Cardiovascular Portfolio, and the Diabetes Operating Unit; Bob White, EVP and President of the Medical Surgical Portfolio; and Brett Wall, EVP and President of the Neuroscience Portfolio. We will pause for a minute to assemble the queue. We’ll take the first question from Bob Hopkins at BofA Securities. Bob, please go ahead.
Bob Hopkins: Oh great. Thanks and good morning. And just to make sure the technology is working okay, can you hear me this morning?
Geoffrey Martha: Yes, we can hear you Bob.
Bob Hopkins: Great, thanks Geoff. I appreciate the opportunity to ask a question and congrats on the momentum. I guess for my one question, given that it's such an important topic Geoff, and you're such a major player around the globe, and I'm sure investors would love to hear a little more detail on just what you're seeing currently with the recovery in Surgical Procedures and what you saw over the course of the quarter? Specifically, are things continuing to improve early in fiscal Q1 and are you now seeing year-over-year growth above pre-COVID revenue levels currently?
Geoffrey Martha: Yes. Thanks for the question, Bob. I mean, the way we look at this is, by geography and then by product line or therapy. But I'll start with the answer, overall we're nearing a full recovery and we're seeing with each month of the quarter, every month was better than the prior month and that continued to improve and accelerate into May, largely driven by the U.S. market. I mean once we hit that vaccination inflection point and I know a couple months ago people were worried that it wasn't moving fast enough, then we hit an inflection point and things really opened up. And so in the U.S. where depending with therapy you want to look at anywhere from 85% to over 100% of pre-COVID levels and like I said, every month got better. And then you look around the world, China's pretty much back to normal totally and Europe being our second biggest, Western Europe if you look at that as one market, that is lagging behind the U.S., but look we're confident that when you have a healthcare system like they have with that kind of infrastructure, once they get the vaccinations going, it will hit that same inflection point in the United States and open up. But as you know they are a couple of months behind. The harder one to peg down is the emerging markets. I mean places like India where the virus is still raging, southeast -- other parts of Southeast Asia, Latin America, they don't have the same infrastructure even when they get the vaccine and there's a lot of people. So, there's a lot of vaccines that you need to get there. So that's a harder one to pin down, but overall as a company, I guess that we are nearing a full recovery despite the emerging market piece, really driven by the acceleration of the United States and I guess that we expect Europe to come not too far behind.
Bob Hopkins: Any thoughts on Japan?
Geoffrey Martha: You know Japan, it was doing pretty well and then it slowed down a bit and it's starting to come back, but like many of the developed market, it slowed down in that December, January time frame, but it is starting to come back for us as well.
Bob Hopkins: Thank you very much.
Ryan Weispfenning: Thanks Bob. Let's go to the next question please, Francesca.
Francesca DeMartino: We'll take the next question from Robbie Marcus from J.P. Morgan. Robbie, please go ahead.
Robert Marcus: Oh great. I'll add my congrats on the quarter. So, Karen, maybe for you, there's a lot to unpack here in the guide and it's great to see revenues come in above the Street offset, a little on EPS, I was hoping if you give a bit more color to what's assumed in there in terms of any bolus of recovery patients over the balance of the year? Anything you could give us on top and bottom line cadence throughout the recovery through the year? And just how we think about operating margin versus some of the below the line items would be great? Thanks.
Karen Parkhill: Thanks Robbie. So, in terms of revenue, clearly we're seeing a strong end to our fiscal year and that's continuing into the first quarter and we expect that momentum to continue. So, from a revenue perspective, we expect increasing revenue growth on a two-year stacked basis throughout the year. In terms of bolus of revenues, we just expect it to be steady, steady increase. In terms of operating margin, we expect an operating margin expansion this year even with our significant increase in investment, particularly against the Robot and RDN and that's what's driving our guide in line with Street expectations. Hopefully that's helpful.
Robert Marcus: Yes. Maybe just a quick follow up there on operating margin because there's a lot of room in improvement, you know is something like in the 28% to 28.5% percent range the right place to be?
Karen Parkhill: Yes. I would say you can expect a few points, roughly a little bit over 3 points of improvement in the year, and so we're driving that expansion at the same time that we're driving important investments.
Robert Marcus: Great, thanks a lot.
Karen Parkhill: Yes.
Ryan Weispfenning: Thanks Robbie. Let's go to the next question please, Francesca.
Francesca DeMartino: We'll take the next question from Vijay Kumar from Evercore ISI. Vijay, go ahead please.
Vijay Kumar: Thanks guys for taking my question. And Geoff congrats on a solid print here. I did have one question on Surgical Robotics, actually it's a two-parter; one, the $50 million to $100 million expectation and perhaps doubling or tripling, what's, I guess, can you talk about the assumptions behind the wide range? Is that a timing related on perhaps when you might get the accruals in major markets? And then related to that, when you, I think you guys called out $400 million of operating losses, with revenue from $50 million to $100 million, I think that implies perhaps $1 billion of step-up on the OpEx side, where is that spend going and how should we think about profitability on these new initiatives? Thank you.
Karen Parkhill: Vijay, I might start by saying that the $400 million of operating losses that we shared with you is both the Robot and RDN combined, it's not just the Robot. And in terms of our assumptions behind the $50 million to $100 million, you can expect it to accelerate into the year, particularly in the back half and the fourth quarter. And we're pleased to be launching this Robot, and we're really excited about the prospects beyond this fiscal year into FY '23 where we said that it should double or perhaps even triple.
Vijay Kumar: Sorry and that spend perhaps can you clarify how much of that is R&D versus build out of the commercial organization.
Karen Parkhill: Yes, I’m going to let Bob White comment too, but you can expect it's a lot. We're going to continue in R&D spending and we're going to be building out sales force and customer service and support as well.
Bob White: Yes, that's right Karen. That spend is really built as we now commercialize the Robot and as I talked about in the past few chats we’ve got a really exciting product pipeline across those four vectors in innovation, Instrumentation, Data and Analytics, Visualization and of course the Robotic System as well.
Vijay Kumar: Thanks guys.
Ryan Weispfenning: Thanks Vijay. Next question please, Francesca.
Francesca DeMartino: We will take the next question from Joanne Weunsch from Citi. Joanne, please go ahead.
Joanne Weunsch: Can you hear me okay?
Geoffrey Martha: Yes, we can, Joanne.
Joanne Weunsch: Wonderful. I’d like to spend just a couple of minutes on diabetes. There’s two major medical meetings coming up, ATTD and ADA. And you’re launching Guardian Sensor 4 and the smart insulin pen outside the United States. So it’s sort of a multi-part question, but first of all, what should we be expecting at these two meetings? As it relates to the Sensor could you give us some of the parameters, I know of zero calibrations, but I’m curious on mode? And lastly, how do you look to price these products as you bring them first outside the United States and then into the United States? Thanks.
Geoffrey Martha: Okay, Joanne maybe I’ll have Sean answer those questions.
Sean Salmon: Thanks, Joanne. Yes, we’ve got a lot coming out next week at ATTD the plan the sensor data which will be released, there’s the abstract available on the website right now, which includes the marked numbers. We also have information coming out in the 780G experience, which I’d point you to look at the first 40,000 patients a real world experience are being launched there. We’ll have additional smart pin data coming out at the ADA meeting. But in terms of your specific question on mark, that’s really not a great metric to look at. There’s sort of an overall average of how the difference is looking across the full range of the sensor, but what you really want to know is, when your blood sugar is high or when it’s low, is your sensor accurate? And those data are really accurate and you’ll see that in the presentation. And the other thing that’s important is the trending, is the blood sugar reliably being going up or down, and that’s really what matters. So kind of like A1C is a big average over time for glycemic control and time and range replace that metric, really the accuracy at the right places in the ranges, but it’s important, and you’ll see that in the day that’s being presented. In terms of price, and there’s no plan to change the pricing between what we’ve done with Guardian Sensor 3 or Guardian Sensor 4 in any market.
Karen Parkhill: Thank you.
Ryan Weispfenning: Thanks, Joanne. Next question please, Francesca.
Francesca DeMartino: We’ll take the next question from Chris Pasquale at Guggenheim Securities. Chris, please go ahead.
Chris Pasquale: Sorry, can you me okay?
Geoffrey Martha: Yes, we can hear you just fine, Chris.
Chris Pasquale: Great. I wanted to follow-up on the diabetes business, 3% to 4% growth coming off of the year in which sales were flat, doesn’t imply a ton of progress on the turnaround at FY 2022. I’m curious whether that guidance really assumes any contribution from 780G and Zeus in the United States? And maybe tied into that, your latest expectations on the timing of potential FDA approvals for those products?
Karen Parkhill: Yes, Chris, I’ll take the first part. I’m going to let Sean comment on the second part. One thing to keep in mind with our diabetes guide is that we purposely did not adjust for the extra week across the whole company that we had last year, because the reduction in bulk purchases offset it. But that reduction in bulk purchases did not affect our diabetes business. So really, we need to look at it with the loss of the extra week that is indeed affecting them and that loss of the extra week is about 150 basis points on the year. So hopefully, that’s helpful.
Sean Salmon: Yes, just to build on what Karen said, we also had a bit of a comparable issue within some international markets, where there was some stockpiling of the consumables that use that, that’s a little bit of your comparison, but the bigger effect for us is that the installed base in the last six months, so those coming out of the warranty in the last six months, was just higher than what we’re going to see in the first half of the fiscal year. So just getting a difference of how many patients come in with timing? Certainly, that the new product flows, you mentioned 780 and Zeus for the U.S. will be most important for us to continue to move both patients from the installed base as well as those new patients, those coming out of MDI or competitors. I don’t have an update on the timing, we’re inactive review, as Geoff said, on the filing. And we, the reviewer that’s working with us is the same one that reviewed the 770 device. We think that familiarity is going to be helpful, but there’s no update on timing at this point.
Geoffrey Martha: Thanks. Yes, I just you know, it’s good to see though the pipeline starting to show up here. I mean, we’re looking forward to get to the U.S., but the 780G, the new sensor, the extended wear infusion set, it’s a pretty powerful combination. And we’re seeing great clinical results and great patient feedback. And I think you’ll see that in the data that comes out. And it’s a good leading indicator of what we’re goanna see in the United States, when it gets here.
Ryan Weispfenning: Thanks, Chris. Let’s go to the next question please, Francesca?
Francesca DeMartino: Okay, the next question from Larry Biegelsen from Wells Fargo Securities. Larry, please go ahead.
Larry Biegelsen: Good morning. Thanks for taking the question. One, just one for Sean, on renal denervation. So Sean for the ON MED data, TCT is the pilot data, good proxy. I think with the off Med, we saw little degradation in the efficacy, would you expect the same here? And can you have reimbursement, how should we think about the ramp? Given the uncertainty around reimbursement, I think we all understand it’s a big opportunity, you guys are really excited about it. But how do we think about, if it’s something that could be a slow ramp, because reimbursement may not be in place, upon approval? Thanks for taking the question.
Sean Salmon: Yes, thanks Larry. I think there’s a good proxy for that pilot study, it sort of informed our decision, should we continue on? And is this worth studying? So we think, that magnitude of benefit could be there. But you’re right to point out that when you get into, more centers, more patient and physician variables, things can move around a little bit. So we’ll see what that looks like. But we’re confident that the trials designed properly to get us the right answer. The reimbursement is certainly the hurdle we do have CE mark, we have approval, a lot of countries are getting that paid for it’s going to be important. And in the United States, we’re waiting legally be proposed rule on M set, to allow four years of coverage as we develop further evidence upon approval. Now, that’s, that doesn’t cover payment, we still have work to do there, we still have to go pair-by-pair, because a lot of the patients will fall into the non-Medicare bucket of patients. But we’ve been working that for a number of years, frankly, to make sure that we have the right evidence to satisfy their needs, which really, frankly, drove the need for an ON MED trial to begin with. But yes, we got a lot of work ahead of us, but we’re very excited about the opportunity. And it’s getting closer and closer.
Larry Biegelsen: Thanks, Sean.
Ryan Weispfenning: Thanks, Larry. Next question please, Francesca?
Francesca DeMartino: Okay, the next question from Rick Wise from Stifel. Rick, please go ahead.
Rick Wise: Good morning, everybody. And I guess I have a question that may be that is for both Geoff and Karen. It’s that cash. Maybe talk about your cash generation potential in the year ahead, your thoughts about some of the key drivers there. But may be Geoff, you could expand on your thoughts about the use of cash in the sense that I mean, you all indicated that you’re buying back stock to offset the dilution, you’ve raised the dividend. So that sort of leaves M&A is the year ahead going to be a year of more intense M&A activity, you have so much going on internally. Is this a priority? And maybe any color about how you’re thinking about your priorities as you look ahead? Thank you.
Geoffrey Martha: Sure, thanks. Thanks for the question, Rick. In terms of like our priorities, our priorities are investing in growth and today we announced the largest increase in R&D in our history. And it’s because we’re seeing these large market opportunities with clear patient need, where Medtronic has a right to win. And so we’re looking at those holistically, investing organically in R&D, but also other growth investments, like we talked about, ahead of some certain product launches like Guardian and the Robot, so we’re investing in, sales and marketing and other related growth investments. But organics is still - is a priority. We did a number of deals last year, tuck-in deals, and I’d say tuck-ins are still to focus. And those tuck-in deals could be up to several billion dollars. I mean, the ones we did over the last 18 months have been smaller than that. But, I wouldn’t mistake size for impact some of these ones like Medicrea, which is the AI planning tool and outcomes tracking tool and now comes tracking tool for spine is a real nice piece of the puzzle for our spine strategy. And, a couple questions here on the call today about our smart pen, the Companion Medical, so these are impactful deals and we look to continue those. And so it’s still a priority and over and above, over buybacks, and we’ll see how the year plays out. It’s tough to predict right. We’re going to remain disciplined here. But I think the theme you’d walk away with is that we’re committed to investing in growth, both organically, inorganically and doing what it takes to do that, and still deliver on the EPS growth expectations that we set out. And so that’s what the team is focused on, and you’re seeing the benefits of that. Well, Karen, if you want to…?
Karen Parkhill: Yes, I would just add, Rick your first question on cash generation in the years ahead. Clearly, we are focused on driving strong conversion of our non-GAAP EPS into cash. And, we’ve said we’ve targeted greater than 80% conversion rate, that doesn’t change. So we remain focused on delivering that. And we also, are growing cash along with earnings and we’re focused on driving continued working capital productivity, in our day sales outstanding, our days payable, our inventory. So you can expect us to continue to have this keen focus on cash flow and driving, strong results from it.
Rick Wise: Thank you very much.
Ryan Weispfenning: Thanks, Rick. Next question please, Francesca?
Francesca DeMartino: We’ll take the next question from that Matt Miksic from Credit Suisse. Matt, please go ahead.
Ryan Weispfenning: Matt, are you there?
Matthew Miksic: Hi, can you hear me okay?
Ryan Weispfenning: Yes, now we can. How are you doing Matt?
Matthew Miksic: I’m well, thanks. Thanks so much for taking the question. So, one on your robotic surgery programs, if I could. Your first part, if you could maybe just talk a little bit about, how some of the pandemic conditions around the world are affecting your progress so far? How you’re thinking about fiscal 2022 and some of the range that you’ve put out there in that $50 million to $100 million? And then secondly, there has been this, what feels like a bit of an inflection point in terms of robotic surgery, momentum and placement throughout the back end of last year and the first part of this year, just wondering how, yes, if you could describe your, how you compare the fourth quarter to the third quarter and how the cadence feels in terms of new placements and pull through in your current programs?
Geoffrey Martha: Okay, yes, I was goanna ask you to clarify, because when you said robotics, I wasn’t sure. So on the spine side, look, Matt, I know you’ve followed this for years, the strategy of surrounding the spine procedure and preceding the spine procedure, and following up the spine procedure with enabling technology from surgical planning, to navigation, interoperative imaging, the robot, this is paying off. I mean, we had record sales last quarter of our capital equipment tied to spine procedures and continue to outpace the competition on the robotic sales. But more than anything, okay, more important than all of that is the surgeon feedback that we are getting, has hit an inflection point. They are now talking about the outcomes that they’re getting from this. It’s the planning, the precision of the planning to get the right alignment plan in there. And then the accuracy of executing to that plan with Nav and the robot, and then the ability to follow it up and access images in the PAC System through Medicrea to come back and retrain or continue to evolve our algorithms. And also shows surgeons are you really getting that alignment that you thought, this is coming together, and I think we are separating ourselves from the pack and really getting closer to what our ultimate goal here is, is to transform spine surgery from the art that it is today to a science and then demonstrate it with outcomes. So that is something we’re very excited like you mentioned the momentum. The momentum is the lagging, the momentum from the enabling technology, like I said record sales and it’s because the buzz is out there from surgeons starting to talk about the results they’re getting from using this. And people that were sitting on the sidelines are jumping in and the bus is moving or the train has left the station on this one. And the feedback from our field, again a lagging indicator is palpable the energy. So we’re feeling really good about spine and robotics and in the lessons that we’ve learned from spine. We are spending a lot of time our spine team and Brett Wall working with Bob White and Megan Rosengarten on the soft tissue. I think a lot of those lessons learned. I mean the markets aren’t the same, they are different, but there are some lessons learned and there are some synergies there that we will incorporate into our Hugo soft tissue robot launch.
Matthew Miksic: Thanks so much.
Ryan Weispfenning: Thanks, Matt. Next question please, Francesca?
Francesca DeMartino: We’ll take the next question from Jayson Bedford from Raymond James. Jason, please go ahead.
Jayson Bedford: Good morning. I just wanted to get back, Karen, to the operating margin commentary; it looks like you did just under 24% in fiscal 2021. I think you mentioned you’re expecting a little over 300 bps in fiscal 2022. So is the anticipation that that margin in 2022 is going to be around 27%?
Karen Parkhill: Yes. So 27%, 27.5% in that range for the year, but keep in mind that our op margin should improve as we go through the year and so by the end of the year, we expect it to be, above that 28%.
Jayson Bedford: Okay, just any commentary on gross margin?
Karen Parkhill: Yes, gross margin we also expect sequential improvement, about half a point a sequential improvement in the gross margin through the year.
Jayson Bedford: Thank you.
Ryan Weispfenning: Thanks, Jason. Next question please, Francesca?
Francesca DeMartino: We’ll take the next question from Danielle Antalffy from SVB Leerink. Danielle, please go ahead.
Danielle Antalffy: Hey, good morning, everyone. Thanks so much for taking the question. Geoff, I just wanted to follow up on a comment you made earlier regarding it depends on the business line as to the recovery? Where are the business lines that are lagging? And sort of when are you expecting those business lines to get back to full recovery relative to some that have already gotten there? Thanks so much.
Geoffrey Martha: Well, in the, I’d say in the United States, even the ones that are lagging, I would expect them to get back to a full recovery in our fiscal Q1. And the ones that are lagging are more, the more elective areas like ENT, our GI business, our Endovenous business. And it is, all those businesses that I mentioned, we talked in the commentary about ENT and GI gaining share. So it’s not a competitive thing, it really is a COVID issue and in the United States, we expect those to get back in our fiscal Q1. And then, we talked about before, Europe is lagging by few months and emerging markets hard to predict, but it’s it comes down to the elective nature. There’s a spectrum, maybe stroke and on one end, not very elective, at least from my perspective, and on the other end, you have some of these ones I just mentioned, like ENT, GI, Endovenous. I hope that answered your question, Danielle.
Ryan Weispfenning: We might have lost her. Thanks, Danielle. We’ll take one more question please, Francesca?
Francesca DeMartino: Okay, we’ll take the last question from Steve Lichtman from Oppenheimer. Steve, please go ahead.
Steve Lichtman: Thank you. Good morning. Geoff, I was wondering if you could talk about the benefits you’re seeing from the more decentralized operating structure now, now when you’re in, is it delivering what you had hoped? Any comments on the changes you’re seeing on the ground would be helpful? And just to clarify, FY 2022 will be the first year that market share will be included in compensation? Thanks.
Geoffrey Martha: Yes, the answer to your last question is, is yes, FY 2022 to be the first year. We need to work on how to measure this over the course of FY ‘21 precisely enough to put it in comp. So in terms of the operating model, I’d say look the dust is still settling a bit, but we have definitely past, I’d say the most difficult part and I’m excited about where we’re headed. We’ve got increased role clarity and accountability across the org and this new decentralized model. And people are now looking forward and focused on their key metrics. So like for operating units, it’s this innovation pipeline, it’s their market growth, it’s their market share, as we just talked about, and this market share one is liberating for us, because instead of comparing ourselves to ourselves, we’re comparing ourselves to the market with the clear expectation to grow at or above the market, that clearly clarifies a lot. Four our regions, things like strategic account growth, over and above, what we’re getting, in the traditional Med-Tech model of selling to the specialist position and focused on those patients. But in addition to that, the strategic account growth, for our Executive Committee, right for the people on this call, measurements around capital allocation to the high growth segments, portfolio management, all are now focused to increase our overall company weighted average market growth rate. Right? So and then finally, I’d say there’s lots of excitement, more than I would have thought maybe even about the culture changes. This thing we’re calling the Medtronic mindset that has these, it really works alongside our mission. Medtronic is known for a mission driven company. We always want to be known for that, that’s kind of our ROI if you will. But adding these things like acting boldly, competing to win, move a speeding decisiveness, delivering results the right way, adding these in to the mix alongside our mission has generated a lot of energy, and it’s kind of taken off organically inside the company. And, so, I’d say overall, really happy with where it’s going, and we’re starting to see the results of this.
Ryan Weispfenning: Great, thanks Steve. Geoff, please go ahead with your closing remarks.
Geoffrey Martha: Sure, all right. Well, thanks, everybody for the questions. And, we really appreciate your support and your continued interest in Medtronic. And we hope you’ll join us for our Q1 earnings for our webcast which we anticipate holding on August 24, where we’ll update you on our progress. And so with that, again, thanks for tuning in today and please stay healthy and safe and have a great rest of your day.
Related Analysis
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).