Medtronic Beats Earnings, Results Stronger - Analyst Blog
May 22 2013 - 10:37AM
Zacks
Medtronic Inc.
(MDT) reported fourth-quarter fiscal 2013 earnings per share (EPS)
of 95 cents, up 1% year over year. After taking into account
certain one-time items, adjusted EPS was $1.10, up 11% year over
year and ahead of the Zacks Consensus Estimate of $1.03. Fiscal
2013 EPS came in at $3.37, a decline of 1% over the prior-year
result. However, the full-year adjusted EPS was up 8% to $3.75,
well ahead of the Zacks Consensus Estimate of $3.69.
Revenues in the reported quarter were $4.459 billion, up 4% year
over year (up 5% at constant exchange rates or CER). It was also
above the Zacks Consensus Estimate of $4.388 billion. The
annualized revenues were pegged at $16.590 billion, up 4% on a
reported basis and 5% at CER, marginally beating the Zacks
Consensus Estimate of $16.521 billion.
Medtronic derived 47% of its total sales from the international
market, which climbed 4% year over year (up 7% at CER) to reach
$2.087 billion in the reported quarter. As a result of the
company’s focus on emerging markets, revenues from these regions
experienced continued growth momentum and increased 13% (14% at
CER) to $521 million. This region now represents 12% of the
company’s total revenue.
Segment Details
Medtronic earns revenues from two major groups – the Cardiac &
Vascular Group and the Restorative Therapies Group. The former
encompasses the Cardiac Rhythm Disease Management (“CRDM”),
Coronary, Structural Heart, and Endovascular businesses; while the
latter includes the Spine, Neuromodulation, Diabetes and Surgical
Technologies businesses.
After a series of lackluster quarterly results, CRDM showed signs
of improvement with 3% year-over-year sales growth (up 4% at CER)
to $1.332 billion. Revenues from Implantable Cardioverter
Defibrillators (ICD) increased 2% at CER to $755 million, which
according to the company outperformed the market. With the growing
strength of the Advisa DR MRI (TM) SureScan (TM) pacing system in
Japan, pacing system revenues increased 5% at CER to $505
million.
Coronary, Structural Heart and Endovascular recorded growth of 5%,
8% and 10%, respectively, at CER. The company is benefiting from
the sale of the Resolute drug eluting stent (“DES”), which grew 22%
at CER driven by significant share gains of the Resolute Integrity
drug-eluting stent worldwide.
While strong CoreValve transcatheter aortic heart valve sales in
the international markets led to growth in the Structural Heart
business, Endovascular growth was based on solid performances of
the Valiant Captivia thoracic stent graft across key geographies.
The Endurant abdominal aortic stent continues to grow strong in
Japan.
Spine revenues maintained its sluggish trend and fell 1% year over
year (flat at CER) along with a decline in revenues from BMP (bone
morphogenetic protein) and BKP (balloon kyphoplasty procedure). At
CER, revenues from Core Spinal remained flat at $671 million.
However, excluding revenues from BKP, Core Spinal grew in the
low-single digit at CER.
Meanwhile, Surgical Technologies revenues were $407 million (up 10%
year over year and up 11% at CER), while revenues at
Neuromodulation were $492 million (up 6%, up 7% at CER) and at
Diabetes were $407 million (up 4%, same at CER).
Margins
Gross margin during the reported quarter contracted 107 basis
points (bps) to 74.6%. However, operating margin expanded 124 bps
year over year to 32.6%, with a 1% increase in selling, general and
administrative expenses (to $1.475 billion), a 4.1% rise in
research and development expenses (to $409 million) and 125%
decline in Other expenses (to $12 million).
Guidance
Medtronic provided its outlook for fiscal 2014. The company expects
full-year EPS in the range of $3.80−$3.85 (annualized growth of
6%−8%) on revenue growth of 3%−4% at CER. The current Zacks
Consensus Estimate for EPS stands at $3.83 (on revenues of $16.998
billion) and remains within the guided range.
Our Take
After several quarters of tepid growth, we are encouraged with the
signs of improvement in Medtronic’s core CRDM and pacing segments.
In this regard, we note that the challenging economic conditions, a
competitive environment, pressure on core segments and
larger-than-expected currency headwinds continue to remain major
causes of concern for medical device majors like Boston
Scientific (BSX) and St. Jude Medical
(STJ). Both these companies barely managed to stay in line with the
Zacks Consensus Estimate for earnings in the first quarter.
Currently, Medtronic retains a Zacks Rank #2 (Buy). Medical
products companies such as Conceptus Inc. (CPTS)
which carries a Zacks Rank #1 (Strong Buy), are expected to do
well.
BOSTON SCIENTIF (BSX): Free Stock Analysis Report
CONCEPTUS INC (CPTS): Free Stock Analysis Report
MEDTRONIC (MDT): Free Stock Analysis Report
ST JUDE MEDICAL (STJ): Free Stock Analysis Report
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