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Medtronic (MDT) Q1 Earnings Beat Estimates, Margins Down
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Medtronic plc (MDT - Free Report) reported adjusted earnings per share (EPS) of $1.13 in first-quarter fiscal 2023, beating the Zacks Consensus Estimate by 0.9%. However, adjusted earnings plunged 19.9% from the year-ago figure of $1.41 per share. Currency-adjusted EPS came in at $1.16 for the quarter.
Our model too projected an adjusted EPS of $1.13 in Q1.
Without certain one-time adjustments — including restructuring and associated costs, amortization and restructuring expenses, acquisition-related costs and certain medical device regulation charges, among others— GAAP EPS was 70 cents, reflecting a 25% surge from the year-ago reported figure.
Total Revenues
Worldwide revenues in the reported quarter grossed $7.37 billion, down 4% on an organic basis (excluding the impacts of currency) and 7.7% on a reported basis. Meanwhile, the top line exceeded the Zacks Consensus Estimate by 2.3%.
The fiscal first-quarter revenues compares to our own estimate of $7.25 billion.
The Q1 organic revenues, according to the company, reflect the unfavorable market impact of supply chain shortages, coupled with a strong comparison with high ventilator sales and a rebound in market procedures post the third COVID-19 wave in the year-ago period.
Q1 in Details
In the quarter under review, U.S. sales (51% of total revenues) declined 8% on a reported basis (down 9% on an organic basis) to $3.77 billion. Non-U.S. developed market revenues totaled $2.33 billion (32% of total revenues), depicting a 10% drop on a reported basis (up 2% on an organic basis).
Emerging market revenues (17% of total revenues) amounted to $1.28 billion, down 1% on a reported basis (up 2% organically).
Segment Details
The company generates revenues from four major segments, namely Cardiovascular Portfolio, Medical Surgical Portfolio, Neuroscience Portfolio and Diabetes.
In the fiscal first quarter, Cardiovascular revenues fell 1.3% at CER to $2.71 billion, reflecting low-single-digit organic decline in Cardiac Rhythm & Heart Failure (CRHF) and Coronary & Peripheral Vascular (CPV) and flat year-over-year organic performance in Structural Heart & Aortic (SHA).
CRHF sales totaled $1.39 billion, down 1.3% year over year at CER. Revenues from SHA were down 0.4% at CER to $741 million. CPV revenues were down 2.6% at CER to $579 million.
For the Cardiovascular segment, we projected $2.73 billion of revenues in the fiscal first quarter.
In Medical Surgical, worldwide sales totaled $2 billion, down 8.9% year over year at CER. The quarter registered high-single-digit declines in Surgical Innovations (SI) and Respiratory, Gastrointestinal & Renal (RGR). Excluding the impact of ventilator sales, Medical Surgical’s first-quarter revenues declined 7% year over year organically.
Our model estimated Medical Surgical revenues of $2.04 billion for Q1.
In Neuroscience, worldwide revenues of $2.12 billion were down 1.1% year over year at CER, driven by mid-single-digit organic declines in Cranial & Spinal Technologies (CST) and Neuromodulation, partially offset by mid-single-digit increases in Specialty Therapies, all on an organic basis.
For the Neuroscience segment, we projected fiscal first-quarter revenues of $1.99 billion.
Revenues in the Diabetes group rose 0.3% at CER to $541 million. Due to the lack of new product approvals, United States revenue declined in mid-teens in Q1, offset by low-double digit organic growth in non-U.S. developed markets and mid-teens organic growth in emerging markets. The company’s international sales were led by mid-twenties sales growth of continuous glucose monitoring (CGM) products and low-double-digit growth in consumable sales, offset by low-single digit declines in durable insulin pumps sales.
Our model projected Diabetes revenues of $491.5 million in Q1.
Margins
Gross margin in the reported quarter contracted 161 basis points (bps) to 65.9% on a 9.9% fall in gross profit to $4.86 billion. We projected an adjusted gross margin of 65.3% for the first quarter.
Research and development expenses fell 7.7% to $692 million. Selling, general and administrative expenses rose 0.8% to $2.57 billion.
Adjusted operating margin contracted 454 bps year over year to 21.7%. The adjusted operating margin, according to our model, was 24.3% for Q1.
Guidance
Medtronic has reaffirmed its fiscal 2023 financial guidance for revenue growth and EPS.
The company continues to expect organic revenue growth in the band of 4-5% from fiscal 2022. Considering current foreign exchange rate, fiscal 2023 revenues are expected to be negatively impacted by $1.4 to $1.5 billion (compared to the prior expectation of $1.0-$1.1 billion impact). The Zacks Consensus Estimate for the company’s fiscal 2023 worldwide revenues is pegged at $31.97 billion.
Full-year adjusted EPS projection has also been maintained in the range of $5.53 to $5.65, including an estimated 17 to 22 cents negative impact from foreign exchange. The Zacks Consensus Estimate for the year’s adjusted earnings is $5.55.
Our Take
Medtronic recorded a substantial decline in revenues and adjusted EPS in the first quarter of fiscal 2023. The year-over-year sales decline at CER across the company’s Cardiovascular, Medical Surgical and Neuroscience segments is a concern. Contraction of both margins raises apprehension too. Further, macroeconomic headwinds related to persistent inflation and unfavorable foreign currency movements continue to challenge the company’s earnings performance.
On a positive note, Medtronic exited the fiscal first quarter with better-than-expected earnings and revenues. The positive CER sales growth in the Diabetes business bodes well. The company’s sales outlook for fiscal 2023 assumes considerable organic growth from the year-ago period, instilling optimism.
Zacks Rank and Key Picks
Medtronic currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader medical space that have announced quarterly results are AMN Healthcare Services, Inc. (AMN - Free Report) , McKesson Corporation (MCK - Free Report) and Merck & Co. (MRK - Free Report) .
AMN Healthcare, sporting a Zacks Rank #1 (Strong Buy), reported second-quarter 2022 adjusted EPS of $3.31, which beat the Zacks Consensus Estimate by 11.8%. Revenues of $1.43 billion outpaced the consensus mark by 4.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
AMN Healthcare has an estimated long-term growth rate of 3.2%. AMN’s earnings surpassed estimates in all the trailing four quarters, the average being 15.7%.
McKesson, carrying a Zacks Rank #2 (Buy), reported first-quarter fiscal 2023 adjusted EPS of $5.83, which beat the Zacks Consensus Estimate by 9.8%. Revenues of $67.2 billion outpaced the consensus mark by 5.2%.
McKesson has an estimated long-term growth rate of 9.9%. MCK’s surpassed earnings estimates in the trailing three quarters and missed on one occasion, delivering a surprise of 13%, on average.
Merck reported second-quarter 2022 adjusted earnings of $1.87 per share, beating the Zacks Consensus Estimate by 11.9%. Revenues of $14.6 billion surpassed the Zacks Consensus Estimate by 5.4%. It currently has a Zacks Rank #2.
Merck has a long-term estimated growth rate of 10.1%. MRK’s earnings surpassed estimates in the trailing four quarters, the average surprise being 16.8%.
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Medtronic (MDT) Q1 Earnings Beat Estimates, Margins Down
Medtronic plc (MDT - Free Report) reported adjusted earnings per share (EPS) of $1.13 in first-quarter fiscal 2023, beating the Zacks Consensus Estimate by 0.9%. However, adjusted earnings plunged 19.9% from the year-ago figure of $1.41 per share. Currency-adjusted EPS came in at $1.16 for the quarter.
Our model too projected an adjusted EPS of $1.13 in Q1.
Without certain one-time adjustments — including restructuring and associated costs, amortization and restructuring expenses, acquisition-related costs and certain medical device regulation charges, among others— GAAP EPS was 70 cents, reflecting a 25% surge from the year-ago reported figure.
Total Revenues
Worldwide revenues in the reported quarter grossed $7.37 billion, down 4% on an organic basis (excluding the impacts of currency) and 7.7% on a reported basis. Meanwhile, the top line exceeded the Zacks Consensus Estimate by 2.3%.
The fiscal first-quarter revenues compares to our own estimate of $7.25 billion.
The Q1 organic revenues, according to the company, reflect the unfavorable market impact of supply chain shortages, coupled with a strong comparison with high ventilator sales and a rebound in market procedures post the third COVID-19 wave in the year-ago period.
Q1 in Details
In the quarter under review, U.S. sales (51% of total revenues) declined 8% on a reported basis (down 9% on an organic basis) to $3.77 billion. Non-U.S. developed market revenues totaled $2.33 billion (32% of total revenues), depicting a 10% drop on a reported basis (up 2% on an organic basis).
Emerging market revenues (17% of total revenues) amounted to $1.28 billion, down 1% on a reported basis (up 2% organically).
Segment Details
The company generates revenues from four major segments, namely Cardiovascular Portfolio, Medical Surgical Portfolio, Neuroscience Portfolio and Diabetes.
In the fiscal first quarter, Cardiovascular revenues fell 1.3% at CER to $2.71 billion, reflecting low-single-digit organic decline in Cardiac Rhythm & Heart Failure (CRHF) and Coronary & Peripheral Vascular (CPV) and flat year-over-year organic performance in Structural Heart & Aortic (SHA).
Medtronic PLC Price, Consensus and EPS Surprise
Medtronic PLC price-consensus-eps-surprise-chart | Medtronic PLC Quote
CRHF sales totaled $1.39 billion, down 1.3% year over year at CER. Revenues from SHA were down 0.4% at CER to $741 million. CPV revenues were down 2.6% at CER to $579 million.
For the Cardiovascular segment, we projected $2.73 billion of revenues in the fiscal first quarter.
In Medical Surgical, worldwide sales totaled $2 billion, down 8.9% year over year at CER. The quarter registered high-single-digit declines in Surgical Innovations (SI) and Respiratory, Gastrointestinal & Renal (RGR). Excluding the impact of ventilator sales, Medical Surgical’s first-quarter revenues declined 7% year over year organically.
Our model estimated Medical Surgical revenues of $2.04 billion for Q1.
In Neuroscience, worldwide revenues of $2.12 billion were down 1.1% year over year at CER, driven by mid-single-digit organic declines in Cranial & Spinal Technologies (CST) and Neuromodulation, partially offset by mid-single-digit increases in Specialty Therapies, all on an organic basis.
For the Neuroscience segment, we projected fiscal first-quarter revenues of $1.99 billion.
Revenues in the Diabetes group rose 0.3% at CER to $541 million. Due to the lack of new product approvals, United States revenue declined in mid-teens in Q1, offset by low-double digit organic growth in non-U.S. developed markets and mid-teens organic growth in emerging markets. The company’s international sales were led by mid-twenties sales growth of continuous glucose monitoring (CGM) products and low-double-digit growth in consumable sales, offset by low-single digit declines in durable insulin pumps sales.
Our model projected Diabetes revenues of $491.5 million in Q1.
Margins
Gross margin in the reported quarter contracted 161 basis points (bps) to 65.9% on a 9.9% fall in gross profit to $4.86 billion. We projected an adjusted gross margin of 65.3% for the first quarter.
Research and development expenses fell 7.7% to $692 million. Selling, general and administrative expenses rose 0.8% to $2.57 billion.
Adjusted operating margin contracted 454 bps year over year to 21.7%. The adjusted operating margin, according to our model, was 24.3% for Q1.
Guidance
Medtronic has reaffirmed its fiscal 2023 financial guidance for revenue growth and EPS.
The company continues to expect organic revenue growth in the band of 4-5% from fiscal 2022. Considering current foreign exchange rate, fiscal 2023 revenues are expected to be negatively impacted by $1.4 to $1.5 billion (compared to the prior expectation of $1.0-$1.1 billion impact). The Zacks Consensus Estimate for the company’s fiscal 2023 worldwide revenues is pegged at $31.97 billion.
Full-year adjusted EPS projection has also been maintained in the range of $5.53 to $5.65, including an estimated 17 to 22 cents negative impact from foreign exchange. The Zacks Consensus Estimate for the year’s adjusted earnings is $5.55.
Our Take
Medtronic recorded a substantial decline in revenues and adjusted EPS in the first quarter of fiscal 2023. The year-over-year sales decline at CER across the company’s Cardiovascular, Medical Surgical and Neuroscience segments is a concern. Contraction of both margins raises apprehension too. Further, macroeconomic headwinds related to persistent inflation and unfavorable foreign currency movements continue to challenge the company’s earnings performance.
On a positive note, Medtronic exited the fiscal first quarter with better-than-expected earnings and revenues. The positive CER sales growth in the Diabetes business bodes well. The company’s sales outlook for fiscal 2023 assumes considerable organic growth from the year-ago period, instilling optimism.
Zacks Rank and Key Picks
Medtronic currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader medical space that have announced quarterly results are AMN Healthcare Services, Inc. (AMN - Free Report) , McKesson Corporation (MCK - Free Report) and Merck & Co. (MRK - Free Report) .
AMN Healthcare, sporting a Zacks Rank #1 (Strong Buy), reported second-quarter 2022 adjusted EPS of $3.31, which beat the Zacks Consensus Estimate by 11.8%. Revenues of $1.43 billion outpaced the consensus mark by 4.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
AMN Healthcare has an estimated long-term growth rate of 3.2%. AMN’s earnings surpassed estimates in all the trailing four quarters, the average being 15.7%.
McKesson, carrying a Zacks Rank #2 (Buy), reported first-quarter fiscal 2023 adjusted EPS of $5.83, which beat the Zacks Consensus Estimate by 9.8%. Revenues of $67.2 billion outpaced the consensus mark by 5.2%.
McKesson has an estimated long-term growth rate of 9.9%. MCK’s surpassed earnings estimates in the trailing three quarters and missed on one occasion, delivering a surprise of 13%, on average.
Merck reported second-quarter 2022 adjusted earnings of $1.87 per share, beating the Zacks Consensus Estimate by 11.9%. Revenues of $14.6 billion surpassed the Zacks Consensus Estimate by 5.4%. It currently has a Zacks Rank #2.
Merck has a long-term estimated growth rate of 10.1%. MRK’s earnings surpassed estimates in the trailing four quarters, the average surprise being 16.8%.