) reported third-quarter fiscal 2013 earnings per share (EPS) of
97 cents, up 10% year over year. After taking into account
certain one-time items, the adjusted EPS was 93 cents, up 11%
year over year and ahead of the Zacks Consensus Estimate of 91
Revenues were $4.027 billion in the quarter, up 3% year over
year (up 4% at constant exchange rates or CER). However, it was
lower than the Zacks Consensus Estimate of $4.032 billion.
Medtronic derived 46% of its total sales from the
international market, which climbed 8% year over year at CER (up
5% as reported) to reach $1.856 billion. As a result of the
company's focus on emerging markets, revenues from these regions
experienced continued growth momentum and increased 20% (21% at
CER) to $475 million. This region now represents 12% of the
company's total revenue.
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.
Maintaining the lackluster trend witnessed in the past few
quarters, CRDM remained sluggish, with a 1.8% year-over-year
sales decline (down 1% at CER) to $1.171 billion as well as
particular weaknesses in Implantable Cardioverter Defibrillators.
Revenues from ICDs declined 2% at CER to $654 million, while
pacing systems revenues remained flat at CER to $459 million.
However, this was partially offset by encouraging growth of
the atrial fibrillation ("AF") solutions (up 13.7% year over
year) to $58 million on the back of continued global acceptance
of the Arctic Front Advance balloon with EvenCool Cryo
Coronary, Structural Heart and Endovascular recorded growth of
19%, 4% and 14%, respectively, at CER. The company is benefiting
from the sale of the Resolute drug eluting stent ("DES"), which
grew 42% at CER driven by significant share gains of the Resolute
Integrity drug-eluting stent in Japan and strong performance the
U.S. and other international markets.
While strong CoreValve transcatheter aortic heart valvesales
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
geographies.The Endurant abdominal aortic stent continues to grow
strong in Japan. Moreover, the peripheral stent portfolio, which
includes Complete SE vascular stent, showed strong
Spine revenues maintained its downward trend and fell 4% year
over year (down 5% at CER) along with a decline in revenues from
bone morphogenetic protein)
and BKP (
balloon kyphoplasty procedure)
. At CER, revenues from Core Spinal remained flat at $639
million. However, excluding revenues from BKP, Core Spinal grew
in the low-single digit at CER.
Meanwhile, Surgical Technologies revenues were $350 million
(up 10% year over year and at CER), while revenues at
Neuromodulation were $447 million (up 7%, same at CER) and at
Diabetes were $377 million (up 3% same at CER).
Gross margin during the reported quarter contracted 104 basis
points (bps) to 75.2%. However, operating margin expanded 40 bps
year over year to 30.6% with a 2.2% increase in selling, general
and administrative expenses (to $1.401 billion) and a 3.3% rise
in research and development expenses (to $376 million) and 75%
decline in Other expenses (to $17 million).
Medtronic reiterated its revenue and EPS guidance for fiscal
2013. The company continues to expect EPS in the range of
$3.66−$3.70 (annualized growth rate of 6%−7%) on revenue growth
of 3%−4% at CER.
We remain concerned about Medtronic's Pacing and Spine
business, which remained sluggish and in turn affected the
company's overall performance. Moreover, headwinds such as
unfavorable currency movement and global economic uncertainties
remain. These issues had a negative impact on the results of
other MedTech players as well, such as
Boston Scientific Corporation
St Jude Medical
However, Medtronic is gradually showing some signs of
stability in the US Core Spine business. The companyis trying
every means to revive growth. This includes penetrating the
international markets, expansion of portfolio and restructuring
initiatives, which should benefit the company over the long
Moreover, acquisitions completed over the past few years are
contributing to total revenues, a positive trend that is expected
to continue. Meanwhile, Medtronic has increased its focus on the
emerging markets that have been garnering significant growth.
Currently, Medtronic retains a Zacks Rank #2 (Buy). Medical
products companies such as
Acadia Healthcare Company
), which carries a Zacks Rank #1 (Strong Buy), is expected to do
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