What's in the Cards for Medtronic (MDT) in Q2 Earnings?
Medtronic plc MDT is scheduled to report second-quarter and fiscal 2023 results on Nov 22, before the opening bell.
In the last reported quarter, the company’s earnings lagged the Zacks Consensus Estimate by 0.89%. Medtronic surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 0.35%.
Let’s see how things have shaped up prior to this announcement.
Factors at Play
Medtronic has been witnessing an adverse trend of procedure volume across its core business over the past few quarters, impacted by the choppy macroeconomic scenario globally and a severe shortage of health professional labor. Per the company’s August 2022 update, the full impact of inflation with increased freight expense will be realized in Q2 of fiscal 2023. Further, challenges related to the extended COVID-led restrictions in selective geographies, including China and Japan, are expected to have impacted the company’s major business lines.
Added to this, the company is apprehensive about the inflation and currency headwinds affecting margins. Considering how inflation of raw materials and freight has become severe over the past quarter, Medtronic, on the first-quarter earnings call, stated that it would prioritize R&D investments for future growth. This might have once again caused margin pressure in fiscal Q2.
Medtronic PLC Price and EPS Surprise
Medtronic PLC price-eps-surprise | Medtronic PLC Quote
The company had stated that in terms of EPS, the full impact of inflation on raw material and direct labor costs would be realized in the fiscal second quarter as inventory rolls off the balance sheet.
Overall, in the second quarter, Medtronic expects organic revenue growth in the range of 3% to 3.5%, implying strong sequential acceleration, driven by improved product availability based on new launches. The fiscal second quarter would have a currency headwind between $365 million and $415 million, per the company. Second-quarter EPS is expected to be in the range of $1.26 to $1.30, per Medtronic.
The company’s Cardiovascular portfolio is expected to have gained in Q2 fiscal 2023 on thelimited U.S. market release of the Evolut FX valve, which has been receiving strong customer response. Further, the Evolut PRO+ launch in Europe and Evolut PRO launch in China too are expected to have contributed to the company’s fiscal Q3 top line. In cardiac rhythm management, the AURORA extravascular ICD is expected to have registered strong sales. The company earlier expected cardiovascular business revenues to grow in the range of 5% to 5.5% in Q2.
In the neuroscience portfolio, the company is expected to have increased market share in Cranial and Spinal technologies. Demand for the company’s new spine implants is expected to have contributed to the growth. Strong adoption of AI-enabled surgical planning platform among the U.S. user base, the launch of the Catalyft expandable titanium interbody system and the rollout of enabling technologies are expected to have contributed to Q2 growth. The Mazor robotics system and StealthStation navigation system, particularly, are expected to have performed strongly in the to-be-reported quarter.
In Neuromodulation, over the past few months, Medtronic has been witnessing strong momentum from new products in both Pain Stim and Brain Modulation. The company earlier expected its neuroscience revenues to grow in the range of 5.5% to 6% in Q2.
In Medical Surgical and surgical robotics, Medtronic remains focused on the limited market release of the Hugo robot while it scales production. The company recently completed Hugo installations in several geographies like Denmark, France, and Italy, which are likely to have added to the company’s Q2 top-line growth within this arm. However, according to Medtronic, given increased volume-based procurement in many of the Chinese provinces, medical surgical revenues are expected to be down 0.25 point to up 0.25 point in Q2.
In Diabetes, MDT might have faced some competitive pressure in the United States in Q2, which might have impacted growth severely. However, the company is expected to have seen significant growth in markets outside the United States on the increasing user base of the MiniMed 780G insulin pump, combined with the Guardian 4 sensor. According to Medtronic, Diabetes is expected to be down 3% to 6% on an organic basis in fiscal Q2.
Q2 Estimates
The Zacks Consensus Estimate for Medtronic’s fiscal second-quarter total revenues of $7.72 billion suggests a 1.7% decline from the prior-year reported number. The consensus mark for earnings of $1.28 per share implies a 3.03% drop from the year-ago reported figure.
What Our Quantitative Model Predicts
Per our proven model, a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver an earnings surprise. But this is not the case here as you will see below.
Earnings ESP: Medtronic has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Medtronic currently carries a Zacks Rank #4 (Sell).
Stocks to Consider
Some better-ranked stocks in the broader medical space are ShockWave Medical SWAV, AMN Healthcare Services AMN and McKesson MCK, all carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ShockWave Medical’s earnings per share is stable at $2.57 for 2022 and rose from $3.42 to $3.56 for 2023 in the past 60 days. SWAV has gained 43.1% so far this year.
ShockWave Medical delivered an earnings surprise of 146.1%, on average, in the last four quarters.
Estimates for AMN Healthcare Services have improved from earnings of $11.26 to $11.43 for 2022 and $8.30 to $8.39 for 2023 in the past 60 days. AMN has declined 1.6% so far this year.
AMN Healthcare Services delivered an earnings surprise of 10.96%, on average, in the last four quarters.
McKesson’s earnings per share estimates have increased from $24.42 to $24.75 for fiscal 2023 and $26.04 to $26.40 for fiscal 2024 in the past 60 days. MCK has gained 55.2% so far this year.
McKesson delivered an earnings surprise of 4.79%, on average, in the last four quarters.
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