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Medtronic (MDT) Q3 Earnings Top Estimates, Revenues Miss

Zacks Equity Research

Medtronic plc MDT has reported third-quarter fiscal 2020 adjusted earnings per share (EPS) of $1.44, beating the Zacks Consensus Estimate by 4.3%. Adjusted earnings also rose 11.6% year over year.

Without certain one-time adjustments — including restructuring, amortization expenses and certain litigation charges — GAAP EPS was $1.42, reflecting a 51.1% rise from the year-ago reported figure.

Total Revenues

Worldwide revenues in the reported quarter grossed $7.71 billion, up 2.6% on an organic basis (excluding the impacts of currency and significant acquisitions, including Titan Spine) and up 2.3% on a reported basis. The top line missed the Zacks Consensus Estimate by a marginal 1.2%. Revenues at constant exchange rate or CER improved 2.9% in the quarter, considering adjustments for a $46-million negative impact of foreign currency.

In the quarter under review, U.S. sales (52% of total revenues) inched up 0.5% year over year on a reported basis to $4.02 billion. While non-U.S. developed market revenues summed $2.38 billion (31% of total revenues), depicting a 0.4% improvement on a reported basis (up 1.5% at CER). Again, emerging market revenues (17% of total revenues) amounted to $1.32 billion, up 12% on a reported basis (up 13.6% at CER).

Medtronic PLC Price, Consensus and EPS Surprise

 

Medtronic PLC Price, Consensus and EPS Surprise

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

Segment Details

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

CVG comprises Cardiac Rhythm & Heart Failure (“CRHF”), Coronary & Structural Heart (“CSH”), and Aortic & Peripheral Vascular divisions (“APV”). MITG includes 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 third quarter, CVG revenues improved 1.8% at CER (up 1.2% on a reported basis) to $2.82 billion, driven by mid-single-digit growth in CSH and low-single-digit growth in APV, offset by flat results in CRHF, all at CER.

CRHF sales totaled $1.39 billion, up 0.3% year over year at CER (down 0.3% on a reported basis). Low-single-digit growth in Arrhythmia Management was led by high-single-digit growth in Pacemakers on the consistent adoption of the company’s Micra transcatheter pacing system as well as strong growth in AF Solutions, all at CER.

CSH revenues were up 4.6% at CER (up 3.8% as reported) to $948 million, driven bymid-teens constant currency growth in TAVR. However, growth was partially offset by mid-single-digit decline year over year in drug-eluting stents sales in the quarter.

APV revenues were up 1.1% at CER (up 0.4% on a reported basis) to $478 million. Mid-single-digit growth in Aortic was offset by a high-single-digit decline in Peripheral.

In MITG, worldwide sales totaled $2.18 billion, marking a 3.2% year-over-year increase at CER (up 2.4% on a reported basis), banking on mid-single-digit growth in SI andlow-single-digit growth in RGR.

In RTG, worldwide revenues of $2.11 billion were up 3.6% year over year on an organic basis (up 4.2% as reported) on high-single-digit growth in Brain Therapies, mid-single-digit growth in Specialty Therapies and flat results in Spine, offset by a low-single-digit fall in Pain Therapies.

Moreover, revenues at the Diabetes group increased 0.8% at CER (remained unchanged on a year-over-year basis) to $610 million.

Margins

Gross margin in the reported quarter contracted 108 basis points (bps) to 68.9% on 5.9% rise in the cost of revenues to $2.40 billion. Adjusted operating margin contracted 20 bps year over year to 27.9%. Meanwhile, selling, general and administrative expenses fell 0.3% to $2.58 billion, while research and development expenses moved up 2.1% to $573 million.

2020 Guidance

The company issued fiscal fourth-quarter adjusted EPS guidance of $1.62-$1.64 on organic revenue growth expectation of 4.5%. The Zacks Consensus Estimate for EPS is pegged at $1.64, while that for revenues is pegged at $8.50 billion.

Fiscal fourth-quarter revenues are expected to get adversely impacted by currency translation of 8-14 cents.

Fiscal 2020 adjusted EPS view has been raised to $5.63-$5.65 (up from $5.57-$5.63 mentioned earlier). Currency volatility is expected to have a 7-cent adverse impact on the full-year adjusted EPS compared with a negative impact of 10 cents mentioned earlier. The Zacks Consensus Estimate for the same is pegged at $5.60.

Our Take

Medtronic exited the third quarter of fiscal 2020 on a mixed note, with earnings beating the consensus mark but revenues missing the same. The company demonstrated better performances at CER, backed by growth in all major business segments and geographies. This, in turn, highlighted sustainability across groups and regions in addition to displaying a successful integration and achievement of synergy targets.

Apart from product innovation, the company is focusing on the geographical diversification of its businesses. On the flip side, escalating costs and expenses persistently put pressure on its margins. Unfavorable currency movement once again deterred growth in the quarter.

Zacks Rank

Medtronic currently has a Zacks Rank of 2 (Buy).

Earnings Release of Other MedTech Majors

Some other top-ranked stocks, which reported solid results this earnings season, are Stryker Corporation SYK, Accuray Incorporated ARAY and AmerisourceBergen ABC.

Stryker delivered fourth-quarter 2019 adjusted EPS of $2.49, outpacing the Zacks Consensus Estimate by 1.2%. Revenues of $4.13 billion surpassed the consensus mark by 0.7%. The company carries a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Accuray reported third-quarter fiscal 2020 adjusted EPS of a penny, whereas the Zacks Consensus Estimate was pegged at a loss of 7 cents. Net revenues of $98.8 million outpaced the Zacks Consensus Estimate by 0.3%. The company currently sports a Zacks Rank #1.

AmerisourceBergen reported first-quarter fiscal 2020 adjusted EPS of $1.76, which beat the Zacks Consensus Estimate of $1.67 by 5.4%. The company, presently carrying a Zacks Rank #2, has an expected long-term earnings growth rate of 7.4%.

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