Q4 2011 Earnings Call
May 24, 2011 8:00 am ET
Gary Ellis - Chief Financial Officer, Principal Accounting Officer and Senior Vice President
Jeff Warren - Investor Relations
Matthew Dodds - Citigroup Inc
David Roman - Goldman Sachs Group Inc.
Robert Hopkins - Lehman Brothers
Michael Weinstein - JP Morgan Chase & Co
Larry Biegelsen - Wells Fargo Securities, LLC
Kristen Stewart - Deutsche Bank AG
David Lewis - Morgan Stanley
Joanne Wuensch - BMO Capital Markets U.S.
Previous Statements by MDT
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Thanks, Darla. Good morning, and welcome to Medtronic's fourth quarter conference call and webcast. During the next hour, Gary Ellis, Medtronic's Chief Financial Officer, will provide comments on the results of our fourth quarter and fiscal year 2011, which ended April 29, 2011. After our prepared remarks, we'll be happy to take your questions.
First, a few logistical comments. Earlier this morning, we issued a press release containing our financial statements and our revenue-by-business summary. You should also note that some of the statements made during this call may be considered forward-looking statements and that actual results might differ materially from those projected in any forward-looking statement. Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC, therefore, we do not undertake to update any forward-looking statement. In addition, the reconciliations of any non-GAAP financial measures are available on the Investors portion of our web site at medtronic.com.
Finally, unless we say otherwise, references to quarterly or annual results, increasing or decreasing, are in comparison to the fourth quarter and full year of fiscal year 2010, respectively, and all revenue growth rates are given on a constant-currency basis. With that, I am now pleased to turn the call over to Medtronic Chief Financial Officer, Gary Ellis.
Good morning, and thank you, Jeff. This morning, we reported fourth quarter revenue of $4.3 billion, which represents growth of 2% as reported or flat on a constant-currency basis. After adjusting for the benefit we received last year from a CRDM competitor's stop shipment, revenue growth was 4% as reported or 2% on a constant currency basis. Q4 non-GAAP earnings of $966 million and diluted earnings per share of $0.90 increased 2% and 1%, respectively.
Before going into the details of the call, we would like to remind you of the announcement we made nearly 2 weeks ago when Omar Ishrak was named as Medtronic's next Chairman and Chief Executive Officer. Given that he does not officially start until June 13, he will not be on today's call. As we are in this transition, Jeff and I will be conducting the call and Q&A. Omar is a talented executive with a long history of success in healthcare technology, including an impressive track record of delivering top and bottom line growth at GE Healthcare. His strong global perspective and experience driving innovation will be valued at Medtronic. We are excited to have Omar join the team next month and look forward to his leadership and introducing you to him in the future.
At the same time, my colleagues and I also want to acknowledge Bill Hawkins' leadership these past 10 years in Medtronic, including 7 as President and 4 as CEO. Since he announced his retirement in December, Bill has remained actively engaged with the Board of Directors and the management team. Looking back at Bill's tenure at Medtronic, he was instrumental in laying the foundation for our cardiovascular business' current success. He also championed our One Medtronic strategy, focusing the company on capturing the benefits of our size and scale. Under his leadership, we diversified our business into new areas, invested in the emerging markets, developed a robust pipeline of differentiated technologies and added key innovative therapies like Ardian and transcatheter valves to our portfolio. We thank Bill for his commitment to the Medtronic mission and many years of leadership.
Now we would like to recap fiscal year 2011, provide details on our Q4 performance and conclude with our initial FY '12 outlook and guidance. FY '11 was one of the more challenging years in the industry's recent history. We experienced a significant slowdown in our markets early in our fiscal year, driven by the continued macroeconomic downturn, decreased utilization and increased payer pushback, which affected us, our customers and the industry. We estimate our markets are currently growing in the low single digits versus 6% to 7% a little over a year ago. In addition, our now resolved FDA warning letters delayed the launch of several key new products, which increased pricing pressure and delayed our ability to gain market share. Due to these numerous headwinds, our revenue came at nearly $1 billion below original expectations, although it was worth noting that despite this revenue shortfall, non-GAAP diluted earnings per share of $3.33 was only $0.08 below the low end of our original earnings per share guidance. We were able to minimize the impact on earnings per share through our focus on reduced spending throughout the year, and one-time tax items added $0.10 earnings per share benefit to our FY '11 earnings per share.
Despite the challenges, we had several notable areas of successes in FY '11, including achieving great results in our international operations, launching a number of innovative products, making improvements to our quality systems and adding several strategic acquisitions. Our international business grew 5% -- or 6% after adjusting for the extra week in FY '10, driven by strong 20% growth in the emerging markets. We continued to make significant investments for growth in the emerging markets, recently opening our Asian manufacturing facility in Singapore, our new China headquarters and training center in Shanghai and our first Patient Care Centre in Beijing.
In the U.S., we resolved all 3 warning letters and we continue to focus on meaningful quality improvement. Medtronic continues to set the standard for quality in the industry. We also launched a number of innovative new products in FY '11, including the Protecta ICD, Revo MRI pacemaker, and Arctic Front cryoballoon in our CRDM business. In CardioVascular, we launched and gained share with the Resolute Integrity drug-eluting stent in Europe, as well as the Integrity bare-metal stent and Endurant AAA stent graft in the U.S. In our Restorative Therapies Group, we had a number of new product introductions, including the Solera posterior fixation system, RestoreSensor spinal cord stimulator, Activa SC deep brain stimulator, Interstim bowel and Enlite CGM sensor. Many of these innovative new products came out late in the fiscal year, and although we did not realize their full impact in Q4, we are optimistic about their contribution to growth and pricing improvement going forward.