) reported first-quarter fiscal 2014 earnings per share (EPS) of
93 cents, up 12% year over year. After taking into account
certain one-time items, adjusted EPS was 88 cents, up 4% year
over year and in line with the Zacks Consensus Estimate.
Revenues in the reported quarter were $4.083 billion, up 2%
year over year (up 3% at constant exchange rates or CER).
However, it remained below the Zacks Consensus Estimate of $4.112
Total sales grew 6% year over year (up 9% at CER) to $1.887
billion in the reported quarter . The international market
generated 46% of total sales. Based on the company's focus on
emerging markets, revenues from these regions experienced
continued growth momentum and increased 15% (same at CER) to $504
million. This region now represents 12% of the company's total
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.
CRDM sales were flat year over year (up 2% at CER) to $1.193
billion. Revenues from Implantable Cardioverter Defibrillators
(ICD) declined 2% at CER to $655 million. With the growing
strength of the Advisa DR MRI (TM) SureScan (TM) pacing system in
Japan, pacing system revenues increased 6% at CER to reach $474
Coronary, Structural Heart and Endovascular recorded growth of
3% (to $435 million), 13% (to $313 million) and 7% (to $219
million), respectively, at CER. The company is benefiting from
the sale of the drug eluting stent ("DES"), which grew 10% at CER
driven by significant share gains of the Resolute Integrity
drug-eluting stent worldwide.
While strong CoreValve transcatheter aortic heart valve sales
in the international market led to growth in the Structural Heart
business, Endovascular growth was based on the launch of Endurant
II in Japan, solid Thoracic business and strong double-digit
growth in Drug Eluting Balloons.
Spine revenues maintained the sluggish trend and fell 3% year
over year (down 1% at CER) along with a decline in revenues from
BMP (bone morphogenetic protein). At CER, revenues from Core
Spinal grew 1% to $641 million.
Meanwhile, Surgical Technologies revenues were $361 million
(up 11% year over year and up 13% at CER), while revenues at
Neuromodulation were $428 million (up 2%, up 3% at CER) and at
Diabetes were $369 million (up 1%, same at CER).
Gross margin during the reported quarter contracted 75 basis
points (bps) to 74.9%. Operating margin contracted 124 bps year
over year to 14.2%, with a 1% increase in selling, general and
administrative expenses (to $1.416 billion), a 5.0% rise in
research and development expenses (to $1.022 billion) and a 12.8%
increase in Other expenses (to $44 million).
Medtronic reiterated its outlook for fiscal 2014. The company
expects full-year EPS in the range of $3.80−$3.85 (annualized
growth of 6%−8%) on revenue growth of 3%−4% at CER. The current
Zacks Consensus Estimate for EPS stands at $3.83 (on revenues of
$16.936 billion) and remains within the guided range.
Medtronic is off to a disappointing start for fiscal 2014 with
the top line missing estimates. Although adjusted EPS remained in
line with the Zacks Consensus Estimate, margin pressure remains a
However, we are encouraged with the signs of improvement in
Medtronic's core CRDM and pacing segments. We are also impressed
with the several recent growth initiatives taken by Medtronic.
Earlier this month, the company acquired privately held
Cardiocom, a developer and provider of integrated telehealth and
patient services chronic diseases management. The acquisition is
an attempt by the company to rebuild itself as a health care
In this regard, we note that the challenging economic
conditions, a competitive environment, pressure on core segments
and larger-than-expected currency headwinds continue to remain
major causes of concern for medical device majors like
Currently, Medtronic retains a Zacks Rank #4 (Sell). Medical
products companies such as
Gilead Sciences Inc.
), which carry a Zacks Rank #1 (Strong Buy), are expected
to do well.
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