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Medtronic (MDT) Q4 Earnings Beat Estimates, Margins Down

Medtronic plc MDT reported adjusted earnings per share (EPS) of $1.57 for fourth-quarter fiscal 2023 compared with the year-ago quarter’s EPS of $1.52. The figure moved up 3.3% and beat the Zacks Consensus Estimate by 0.6%.

Without certain one-time adjustments — including restructuring and associated costs, amortization, acquisition-related costs and the new European Union medical device regulation charges, among others— GAAP EPS was 88 cents, down 20% from the year-ago quarter’s reported figure.

For the full year, adjusted earnings were $5.29 per share, reflecting a 4.7% fall from the year-ago period. However, it beat the Zacks Consensus Estimate by 0.2%.

Total Revenues

Worldwide revenues in the reported quarter grossed $8.54 billion, up 5.6% year over year on both organic basis (excluding the impacts of currency and contribution from the company's fiscal first-quarter acquisition of Intersect ENT) and on a reported basis. The top line exceeded the Zacks Consensus Estimate by 3.6%.

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Fourth-quarter organic revenues, according to the company, reflect strong performances in the Cardiovascular and Neuroscience business, outside the United States.

Total revenues for 2023 were $31.23 billion, down 1.4% on a reported basis and up 2.1% on an organic basis. The figure beat the Zacks Consensus Estimate by 1%.

Segment Details

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

In the fiscal fourth quarter, Cardiovascular revenues increased 12% at CER to $3.32 billion, with all three divisions reporting organic growth this quarter.
Cardiac Rhythm & Heart Failure sales totaled $1.58 billion, up 1.8% year over year at CER. Revenues from Structural Heart & Aortic were up 42% at CER to $1.11 billion. Coronary & Peripheral Vascular revenues were flat year over year to $631 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 $2.22 billion, down 0.3% year over year at CER. The Surgical Innovations revenue grew 0.7% while Respiratory, Gastrointestinal & Renal. revenues fell 2.3%.

In Neuroscience, worldwide revenues of $2.41 billion were up 4.8% year over year and 6.0% organic, with a low-double digit increase in Specialty Therapies, mid-single digit increase in CST, and a low-single digit increase in Neuromodulation, all on an organic basis.

Revenues in the Diabetes group fell 0.3% at CER and 3% on organic to $595 million. The company registered low-double digit growth in Western Europe in Q4 on strong continued adoption of the MiniMed 780G system and associated increase in CGM attachment rates on the strength of the Guardian 4 sensor.

Margins

Gross margin in the reported quarter contracted 285 basis points (bps) to 65.1% on a 15% rise in cost of revenues.

Research and development expenses were down 1.8% year over year at $640 million. Selling, general and administrative expenses rose 1.8% to $2.62 billion.

Adjusted operating margin contracted 114 bps year over year to 27%.

Guidance

Medtronic issued fiscal 2024 guidance.

Fiscal 2024 organic revenue growth is expected in the range of 4-4.5%. Per the FX rate as of the beginning of May, fiscal 2024 revenues would be positively affected by approximately $110 million to $210 million.

The Zacks Consensus Estimate for the company’s fiscal 2024 worldwide revenues is pegged at $32.30 billion.

The full-year adjusted EPS is expected in the range of $5.00 to $5.10, including an estimated 6% negative impact from foreign exchange beginning May. The Zacks Consensus Estimate for the year’s adjusted earnings is $5.18.

Our Take

Medtronic recorded earnings and revenue beat in the fiscal fourth quarter. The company's Q4 organic revenue results reflect strong performances in the Cardiovascular, Medical Surgical, and Neuroscience portfolios, and in Diabetes markets outside the United States. During the quarter, the company received the FDA approval for the MiniMed 780G system with the Guardian 4 sensor.

However, a substantial decline in Medical Surgical revenues is a concern. The contraction of both margins raises apprehension too. Macroeconomic headwinds related to persistent inflation and unfavorable foreign currency movements continue to challenge the company’s earnings performance.

Zacks Rank & Key Picks

Medtronic currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space that have announced their quarterly results are Hologic, Inc. HOLX, Merit Medical Systems, Inc. MMSI and Boston Scientific Corporation BSX.

Hologic, carrying a Zacks Rank #2 at present, has an estimated growth rate of 5.1% for fiscal 2024. HOLX’s earnings surpassed estimates in all the trailing four quarters, the average being 27.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hologic has gained 4.9% compared with the industry’s 1.3% rise in the past year.

Merit Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 20.2%.

Merit Medical has gained 35.5% compared with the industry’s 5.6% rise over the past year.

Boston Scientific, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11.5%. BSX’s earnings surpassed estimates in two of the trailing four quarters and missed in the other two, the average surprise being 1.9%.

Boston Scientific has gained 28.9% against the industry’s 31.9% decline over the past year.

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