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Medtronic's (MDT) Q3 Earnings Beat, Revenues Lag Estimates

·6 min read

Medtronic plc MDT reported third-quarter fiscal 2022 adjusted earnings per share (EPS) of $1.37, which beat the Zacks Consensus Estimate by a penny. Adjusted earnings increased 6.2% from the year-ago adjusted figure. Currency-adjusted EPS came in at $1.34 for the quarter.

Without certain one-time adjustments — including certain restructuring and associated costs, amortization and restructuring expenses and acquisition-related gains among others — GAAP EPS was $1.10, reflecting a 17% rise from the year-ago reported figure.

Total Revenues

Worldwide revenues in the reported quarter grossed $7.76 billion, up 2% on an organic basis (excluding the impacts of currency) and unchanged on a reported basis year over year. The top line, however, lagged the Zacks Consensus Estimate by 1.9%.

The Q3 results, according to the company, reflect the unfavorable market impact of COVID-19 and health system labor shortages on medical device procedure volumes, primarily in the United States.

In the quarter under review, U.S. sales (51% of total revenues) were unchanged year over year on a reported basis at $3.94 billion. Non-U.S. developed market revenues totaled $2.44 billion (31% of total revenues), depicting a 3% drop on a reported basis (up 1% on an organic basis).

Emerging market revenues (18% of total revenues) amounted to $1.39 billion, up 5% on a reported basis (up 7% organically).

Segment Details

The company currently generates revenues from four major segments, namely Cardiovascular Portfolio, Medical Surgical Portfolio, Neuroscience Portfolio, and Diabetes.

In the fiscal third quarter, Cardiovascular revenues rose 3% at CER to $2.75 billion, reflecting mid-single-digit organic growth in Cardiac Rhythm & Heart Failure (CRHF) and Structural Heart & Aortic (SHA) and low single-digit organic growth in Coronary & Peripheral Vascular (CPV). CRHF sales totaled $1.40 billion, up 4% year over year at CER. Revenues from SHA were up 4% at CER to $740 million. CPV revenues were up 1% at CER to $603 million.

Medtronic PLC Price, Consensus and EPS Surprise

Medtronic PLC Price, Consensus and EPS Surprise
Medtronic PLC Price, Consensus and EPS Surprise

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

In Medical Surgical, worldwide sales totaled $2.29 billion, up 1% year over year at CER. The quarter registered high single-digit organic growth in Surgical Innovations (SI) offset by low double-digit organic declines in Respiratory, Gastrointestinal & Renal (RGR). Excluding the impact of tough year-over-year ventilator sales comparable, Medical Surgical revenues increased 6% organically.

In Neuroscience, worldwide revenues of $2.14 billion were up 2% year over year at CER, driven by low-single-digit growth in Cranial & Spinal Technologies (CST) and Specialty Therapies, partially offset by low single-digit declines in Neuromodulation, all on an organic basis.

Revenues at the Diabetes group rose 5% at CER to $584 millionas a high-teens decline in the United States was partially offset by mid-single-digit growth in international markets. The company reported international growth on low-double-digit growth in sales of continuous glucose monitoring (CGM) products, mid-single-digit growth in consumable sales, and flat year-over-year sales of durable insulin pumps.

Margins

Gross margin in the reported quarter expanded 203 basis points (bps) to 68.3% on a 2.9% rise in gross profit to $5.30 billion. Adjusted operating margin expanded 80 bps year over year to 26.7%. Selling, general and administrative expenses rose 0.9% to $2.56 billion. Research and development expenses increased 11.1% to $668 million.

Guidance

Medtronic provided its fourth-quarter fiscal 2022 financial guidance.

The company expects fiscal fourth-quarter organic revenue growth of approximately 5.5%. According to the company, this is in line with current fourth-quarter organic revenue growth as per Street consensus. If the recent foreign currency exchange rates hold, fourth-quarter revenues would be negatively impacted by approximately $185 million.

The current Zacks Consensus Estimate for fiscal Q4 is pegged at $8.55 billion per share indicating 4.37% year-over-year growth on a reported basis.

The company expects fourth-quarter adjusted EPS in the range of $1.56 to $1.58, which includes a neutral to slightly positive impact of foreign currency based on the recent rates. The Zacks Consensus Estimate is pegged at $1.57 share.

Our Take

Medtronic’s third-quarter fiscal 2022 earnings beat the Zacks Consensus Estimate while revenues missed the mark. The sluggish top-line results reflected the unfavorable market impact of COVID-19 and health system labor shortages on medical device procedure volumes, primarily in the United States.

In the quarter, Coronary & Renal Denervation (CRDN) decreased in the mid-single digits, given the impact of COVID-19 on percutaneous coronary intervention (PCI) procedures. Also, there have been low double-digit organic declines in RGR with sales of ventilators declining in the high-fifties as demand returns to pre-pandemic levels.

On a positive note, the company registered organic growth in the Cardiovascular, Neuroscience and Diabetes segments. Within Cardiovascular, CRHF, CPV and SHA each registered organic growth. The quarter’s gross and operating margins showed improvements on a year-over-year basis.

Zacks Rank and Key Picks

The company currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Baxter International Inc. BAX, Molina Healthcare, Inc. MOH and Bio-Rad Laboratories, Inc. BIO.

Baxter, carrying a Zacks Rank #2 (Buy), reported fourth-quarter 2021 adjusted earnings of $1.04 per share, which beat the Zacks Consensus Estimate by 0.9%. Revenues of $3.51 billion outpaced the consensus mark by 4.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Baxter has an estimated long-term growth rate of 9.5%. BAX surpassed earnings estimates in each of the trailing four quarters, the average surprise being 10.2%.

Molina Healthcare reported fourth-quarter 2021 adjusted EPS of $2.88, which surpassed the Zacks Consensus Estimate by 2.1%. Fourth-quarter revenues of $7.41 billion outpaced the Zacks Consensus Estimate by 3.9%. It currently carries a Zacks Rank #2.

Molina Healthcare has an estimated long-term growth rate of 18.8%. MOH surpassed earnings estimates in three of the trailing four quarters and missed once, the average surprise being 5%.

Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. Fourth-quarter revenues of $732.8 million outpaced the Zacks Consensus Estimate by 0.5%. It currently has a Zacks Rank #2.

Bio-Rad has an earnings yield of 2.3%, which compares favorably with the industry’s negative yield. BIO surpassed earnings estimates in each of the trailing four quarters, the average surprise being 66.9%.


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