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Medtronic's (MDT) Q1 Earnings Beat Estimates, Margins Fall

Medtronic plc MDT reported first-quarter fiscal 2021 adjusted earnings per share (EPS) of 62 cents, beating the Zacks Consensus Estimate of 21 cents by a wide margin. Adjusted earnings however plunged 50.8% year over year. Currency-adjusted EPS came in at 66 cents for the quarter.

Without certain one-time adjustments — including restructuring, amortization expenses and certain litigation charges — GAAP EPS was 36 cents, reflecting a 43.8% decline from the year-ago reported figure.

Total Revenues

Worldwide revenues in the reported quarter grossed $6.51 billion, down 17% on an organic basis (excluding the impacts of currency, Titan Spine acquisition and an extra week of sales benefit in the second quarter) and 13.1% on a reported basis. The top line beat the Zacks Consensus Estimate by 21%.

In the quarter under review, U.S. sales (52% of total revenues) declined 14% year over year on a reported basis (low-twenties percentage dip on an organic basis) to $3.35 billion. Non-U.S. developed market revenues totaled $2.18 billion (33% of total revenues), depicting an 8% deterioration on a reported basis (down low-double-digit percentage decline on an organic basis).

Again, emerging market revenues (15% of total revenues) amounted to $981 million, down 18% on a reported basis (down by high-teens percentage organically).

Segment Details

The company currently generates revenues from four major segments, namely Cardiac and Vascular Group (“CVG”), Minimally Invasive TherapiesGroup (“MITG”), Restorative Therapies Group (“RTG”), and Diabetes Group.

Medtronic PLC Price, Consensus and EPS Surprise

Medtronic PLC Price, Consensus and EPS Surprise

Medtronic PLC price-consensus-eps-surprise-chart | Medtronic PLC Quote

CVG comprises Cardiac Rhythm & Heart Failure (“CRHF”), Coronary & Structural Heart (“CSH”), and Aortic & Peripheral Vascular divisions (“APV”). MITG includes Surgical Innovations (“SI”), and Respiratory, Gastrointestinal & Renal (“RGR”) divisions. RTG consists of Spine, Brain Therapies, Specialty Therapies and Pain Therapies segments, while Diabetes Group incorporates Intensive Insulin Management (“IIM”), Non-Intensive Diabetes Therapies (“NDT”) and Diabetes Service & Solutions (“DSS”) divisions.

In the fiscal first quarter, CVG revenues declined 11.4% at CER to $2.43 billion, representing a decrease in deferrable procedure volumes due to the pandemic. CRHF sales totaled $1.25 billion, down 8.6% year over year at CER. Revenues from CSH were down 15.2% at CER to $780 million. APV revenues were down 12% at CER to $405 million.

In MITG, worldwide sales totaled $1.80 billion, marking a 12.5% year-over-year decrease at CER, due to fall in procedure volumes resulting from the pandemic. Surgical Innovations’ mid-twenties organic decline was partially offset by flat organic revenues in RGR.

In RTG, worldwide revenues of $1.71 billion were down 14.1% year over year at CER. The downside reflected the impact of the pandemic and particularly a decrease in deferrable procedure volumes.There was mid-teens decline in Cranial and Spinal Technologies, low-twenties decline in Specialty Therapies, and mid-twenties decline in Neuromodulation.

Revenues at the Diabetes group decreased 3.2% at CER to $562 million.

Margins

Gross margin in the reported quarter contracted 692 basis points (bps) to 61.5% on 21.9% decline in gross profit to $4 billion. Adjusted operating margin contracted 1540 bps year over year to 16.1%. Selling, general and administrative expenses fell 4.9% to $2.42 billion, while research and development expenses increased 5.8% to $621 million.

Guidance

On account of the uncertainty with respect to the COVID-19 pandemic, this time too, Medtronic has decided not to provide any annual or quarterly financial guidance.

Our Take

While Medtronic’s first-quarter fiscal 2021 earnings and revenues were ahead of the respective Zacks Consensus Estimate, the company registered significant year-over-year decline in these figures. Barring Respiratory, Gastrointestinal, & Renal, there were dismal performance in all business segments and geographies.

The company’s performance was primarily impacted by deferred procedures due to the pandemic. Escalating costs and expenses put pressure on its margins. Unfavorable currency movement once again deterred growth in the quarter.

Nonetheless, the company is focusing on the geographical diversification of its businesses, apart from product innovation. Also, the company demonstrated a strong financial position reflected by the dividend hike.

Zacks Rank & Recent Releases

Medtronic currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hologic, Inc. HOLX reported third-quarter fiscal 2020 adjusted EPS of 75 cents, beating the Zacks Consensus Estimate by 108.5%.  

Patterson Companies, Inc. PDCO reported adjusted earnings per share of 43 cents in fourth-quarter fiscal 2020, which beat the Zacks Consensus Estimate by 152.9%.

Thermo Fisher Scientific Inc.’s TMO second-quarter 2020 adjusted earnings per share of $3.89 beat the Zacks Consensus Estimate by 45.7%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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