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Medtronic (MDT) Up 0.6% Since Last Earnings Report: Can It Continue?

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Zacks Equity Research
·4 min read
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It has been about a month since the last earnings report for Medtronic (MDT). Shares have added about 0.6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Medtronic due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Medtronic Q2 Earnings, Revenues Top Estimates

Medtronic reported second-quarter fiscal 2021 adjusted earnings per share (EPS) of $1.02, beating the Zacks Consensus Estimate by 30.8%. Adjusted earnings however plunged 22.1% year over year. Currency-adjusted EPS came in at $1.06 for the quarter.

Without certain one-time adjustments — including restructuring, acquisition, amortization expenses and certain litigation charges — GAAP EPS was 36 cents, reflecting a 64.4% decline from the year-ago reported figure.

Total Revenues

Worldwide revenues in the reported quarter grossed $7.65 billion, down 1.5% on an organic basis (excluding the impacts of currency) and dipped 0.8% on a reported basis. The top line however beat the Zacks Consensus Estimate by 8.5%.

In the quarter under review, U.S. sales (53% of total revenues) declined 2% year over year on a reported basis (same on an organic basis) to $4.05 billion. Non-U.S. developed market revenues totaled $2.45 billion (32% of total revenues), depicting a 6% improvement on a reported basis (up 1% on an organic basis).

Merging market revenues (15% of total revenues) amounted to $1.15 billion, down 9% on a reported basis (down 6% organically).

Segment Details

The company currently generates revenues from four major segments, namely Cardiac and Vascular Group (“CVG”), Minimally Invasive TherapiesGroup (“MITG”), Restorative Therapies Group (“RTG”), and Diabetes Group.

CVG comprises Cardiac Rhythm & Heart Failure (“CRHF”), Coronary & Structural Heart (“CSH”), and Aortic & Peripheral Vascular divisions (“APV”). MITG includes Surgical Innovations (“SI”), and Respiratory, Gastrointestinal & Renal (“RGR”) divisions. RTG consists of Spine, Brain Therapies, Specialty Therapies and Pain Therapies segments, while Diabetes Group incorporates Intensive Insulin Management (“IIM”), Non-Intensive Diabetes Therapies (“NDT”) and Diabetes Service & Solutions (“DSS”) divisions.

In the fiscal second quarter, CVG revenues declined 5.5% at CER to $2.73 billion, representing a decrease in deferrable procedure volumes due to the pandemic. CRHF sales totaled $1.43 billion, down 1.3% year over year at CER. Revenues from CSH were down 13.6% at CER to $831 million. APV revenues were down 1.9% at CER to $468 million.

In MITG, worldwide sales totaled $2.29 billion, marking a 6.9% year-over-year improvement at CER. A decline in procedure volumes in the quarter was offset by increased demand for COVID-19 related diagnostics and therapies. Surgical Innovations’ 4.9% organic decline was more than offset by 29.7% organic revenue growth in RGR.

In RTG, worldwide revenues of $2.06 billion were down 2.9% year over year at CER, impacted by pandemic-led decline in procedure volumes. There was mid-single-digit declines in Cranial and Spinal Technologies, flat sales in Specialty Therapies, and low-single digitdeclines in Neuromodulation.

Revenues at the Diabetes group decreased 5% at CER to $574 million.

Margins

Gross margin in the reported quarter contracted 431 basis points (bps) to 64.6% on a 6.9% decline in gross profit to $4.94 billion. Adjusted operating margin contracted 483 bps year over year to 22.3%. Selling, general and administrative expenses fell 0.8% to $2.60 billion, while research and development expenses increased 5.9% to $639 million.

Guidance

On account of the uncertainty with respect to the COVID-19 pandemic, this time too, Medtronic has decided not to provide any annual or quarterly financial guidance.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Medtronic has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Medtronic has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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