Medtronic Misses 2nd Quarter Revenue Expectations

GuruFocus.com
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- By Alberto Abaterusso

Medtronic PLC (MDT) released the results of the second quarter of 2017 on Nov. 22. The medical technology and services company headquartered in Dublin, Ireland, and traded on the NYSE reported non-GAAP diluted earnings per share of $1.12, beating analysts' expectations by one cent, generating a surprise of only 0.90%.


Source: Yahoo Finance

As shown by the picture above, analysts estimated non-GAAP diluted EPS of $1.11 for the second quarter that ended on Oct. 28, 2016.

The medical device company generated revenue of $7.345 billion, a 4.07% increase year over year. But without the positive influence of foreign currency, the revenue's increase is less: 3.36% year on year.

The company operates in the following four segments: Cardiac and Vascular, Minimally Invasive Technologies, Restorative Therapies and Diabetes.

The Cardiac and Vascular Group (CVG) contributed to worldwide revenue with 35.2% (4% a increase year over year); Minimally Invasive Technologies Group contributed 33.7% (5% increases year on year); the Restorative Therapies Group contributed 24.86% (4% increase) and the Diabetes Group contributed 6.3% (3% increase).

The 4% increase in CVG revenue, $2.584 billion, was guided by strong growth in the Cardiac Rhythm & Heart Failure and Aortic & Peripheral Vascular divisions.

The company said, "Open-to-MIS, Emerging Markets, and Renal Care, as well as contributions from recent acquisitions and strength in Ventilation" drove the increase in the Minimally Invasive Technologies Group (MITG).

Between 6-7% growth in Brain Therapies and Specialty Therapies divisions and continuing advancement in the Spine division's business led the increase in the Restorative Therapies Group.

Medtronic said that the Diabetes Group's growth "was slower this quarter than in previous quarters due to the dynamics associated with the U.S. FDA approval of the MiniMed(R)630G System and earlier-than-expected U.S. FDA approval of the MiniMed(R)670G System." The latter should be available on the market during next springtime season.

For 2017 and the second half of 2017, the company forecasts revenue growth of approximately 5% on a constant currency basis.

The company said, "If current exchange rates remain similar for the remainder of the fiscal year, the company's full year revenue would be negatively affected by approximately $20 million to $60 million, including an approximate $10 million to $30 million negative impact in the third fiscal quarter."

For full-year 2017 and second-half of 2017, the company forecasts diluted non-GAAP EPS growth at double-digit rates on a constant currency basis. The company expects non-GAAP diluted EPS between $4.55 and $4.60 for fiscal year 2017, considering all the conjectures on currency exchange rates.

The company said that it "expects free cash flow for fiscal year 2017 to be in the range of $5 to $6 billion."

Medtronic's second-quarter revenue did not meet the expectations of its chairman and CEO, Omar Ishrak, who said in its 8-K report:


"Q2 revenue was disappointing and did not meet our expectations. We faced issues that affected our growth, including slower than expected revenue as we await new product introductions, particularly in CVG and Diabetes. Despite this revenue shortfall, we produced a strong improvement in operating margins and double digit constant currency earnings per share growth."



Since the release of the results the stock fell sharply, down 6.41% or $5.16 per share on the NYSE.

Disappointing revenue results are also negatively influencing the share price of other stocks in the health sector, such as Abbott (ABT) (-1.82%), Edwards Lifesciences (EW) (-4.08%) and Boston Scientific (BSX) (-1.26%).

At the moment, Medtronic is trading at $75.28 per share, -$0.50 (or -0.66%), from the previous trading day.

Disclosure: I have no positions in any stock mentioned in this article.

This article first appeared on GuruFocus.


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