Medtronic’s First Quarter Outperforms, No Thanks to Spine

On Tuesday, August 19, Medtronic Inc. reported first-quarter earnings that exceeded analyst expectations.

Excluding one-time items, Medtronic earned 93 cents a share for the quarter (ended July 25). Revenue grew 4 percent to $4.27 billion. Analysts, on average, expected earnings of 92 cents a share on revenue of $4.25 billion, according to Thomson Reuters.

U.S. revenue increased 6 percent to $2.3 billion—the company’s largest U.S. sales gain in five years.

International revenue of $1.9vbillion increased 2 percent on a constant currency basis or 3 percent as reported. International sales accounted for 45 percent of Medtronic’s worldwide revenue in the quarter. Emerging market revenue of $539 million increased 11 percent on a constant currency basis or 9 percent as reported and represents 13 percent of company revenue.

“Our first quarter results are a solid start to fiscal year 2015,” said Omar Ishrak, Medtronic chairman and CEO. “Our growth was broad based across businesses and geographies. I was especially pleased that our innovation pipeline is delivering strong results, particularly in the U.S., which had its highest revenue growth performance in five years.”

The company’s orthopedic business (part of the Restorative Therapies Group, which include includes the Spine, Neuromodulation, and Surgical Technologies businesses) dropped for the quarter.

The group had worldwide sales in the quarter of $1.6 billion, representing an increase of 3 percent on both a constant currency and reported basis. Group revenue performance was driven by growth in Neuromodulation and Surgical Technologies, offset by declines in Spine.International sales of $531 million increased 7 percent on a constant currency basis or 8 percent as reported.

Spine revenue of $743 million declined 3 percent on both a constant currency and reported basis, with declines in Core Spine and bone morphogenetic proteins (BMP) offsetting growth for the Interventional Spine business. Core Spine revenue of $552 million declined 2 percent on a constant currency basis.Going forward, company officials claim that new product launches will result in improved performance.Interventional Spine revenue of $81 million grew 4 percent on a constant currency basis. BMP revenue of $110 million declined 11 percent on a constant currency basis, although the company did see sequential stability in underlying demand for BMP.

Neuromodulation revenue of $479 million increased 11 percent on a constant currency basis or 12 percent as reported, driven by solid growth in Pain Stim, DBS, and Gastro/Uro. The business continues to see traction from the RestoreSensor SureScan magnetic resonance imaging (MRI) system, growth in Activa deep brain stimulation systems as a result of both the continued referral development in the U.S. and international momentum from EARLYSTIM clinical trial data, and strong implant rates for InterStim Therapy, officials noted.

Surgical Technologies revenue of $381 million grew 5 percent on a constant currency basis or 6 percent as reported with steady growth across all three businesses:ENT (ear, nose and throat), Neurosurgery, and Advanced Energy.The acquisition of Visualase Inc. was completed at the end of the quarter, a MRI-guided laser ablation technology for neurosurgery, adding to the Restorative Therapies Group’s suite of neuroscience solutions.

Medtronic reiterated its outlook for fiscal 2015 profit of $4.00 to $4.10 a share, excluding special items, and revenue growth in the range of 3 percent to 5 percent adjusted for currency fluctuations.

In June, Minneapolis, Minn.-based Medtronic announced plans to purchase medical device maker Covidien plc in a $42.9 billion cash-and-stock deal. For recent news on the deal, click here.

The compan’s overall net earnings fell to $871 million, or 87 cents a share, from $953 million, or 93 cents a share, a year earlier.

Other Sectors:
The Cardiac and Vascular Group includes the Cardiac Rhythm & Heart Failure, Coronary & Structural Heart, and Aortic & Peripheral businesses. The group had worldwide sales in the quarter of $2.254 billion, representing an increase of 3 percent on a constant currency basis or 4 percent as reported.Group revenue performance was driven by growth in Low Power, Structural Heart, Aortic & Peripheral, and Atrial Fibrillation & Other—which included growth from Hospital Solutions and Cardiocom—partially offset by declines in High Power and Coronary. Group international sales of $1.235 billion declined 1 percent on a constant currency basis and grew 1 percent as reported.

Diabetes revenue of $416 million grew 12 percent on a constant currency basis or 13 percent as reported. Medtronic bigwigs noted that growth in the quarter continued to be driven by strong performance in the United States from the MiniMed 530G with Enlite, which automatically stops insulin delivery if glucose levels fall below a predetermined threshold.