How Medtronic Is Beating Sales ExpectationsHow Medtronic Is Beating Sales Expectations

The Reveal Linq insertable cardiac monitoring system was among the products boosting Medtronic sales.

Arundhati Parmar

Buoyed by its performance in its cardiovascular, diabetes and minimally invasive therapies businesses, Medtronic reported fiscal fourth quarter sales Tuesday garnering $7.6 billion, where analysts had expected $7.5 billion.

In the quarter ended April 29, the Irish medtech firm--run out of Minnesota--had net profits of $1.1 billion, or 78 cents per diluted share. Analysts look at non-GAAP performance, and using that measure the company earned $1.27 per share beating analysts' estimates of $1.26 per share.

"With now [six] consecutive quarters of mid-to-high single digit sales growth, [Medtronic] continues to build a consistent track record for at-or-above market growth," wrote Danielle Antalffy, an analyst with Leerink Partners in a research note Tuesday.

However, the company fell short of its own projections on operating margins, a fact that did not go unnoticed by analysts, who look at margins closely.

In cardiovascular, the performance of cardiac rhythm and heart failure products stood out with overall segment sales jumping 7% in the fiscal fourth quarter of 2016 to $1.49 billion, from the same quarter a year ago.

"We believe Medtronic continues to take share in the pacemaker market, driven by the discreet Reveal Linq implantable heart monitor, and in the tri-chamber ICD market, driven by Attain Quad lead adoption," wrote Glenn Novarro, an analyst with RBC Capital Markets, in a research note Tuesday. "[Medtronic] also took share in the U.S. ICD market this quarter owing to the launch of the Evera MRI-safe ICD."

Reveal Linq is an insertable cardiac monitor that is implanted to diagnose atrial fibrillation by monitoring the heart continuously for a period of three years. Among other products, Medtronic also benefited from the adoption of the smallest leadless pacemaker--the Micra--in Europe.

Medtronic's cardiovascular products have also benefited from the fact that the company has a full suite of products that can be safely used under MRI. As MRI becomes a common diagnostic tool, more patients and doctors are looking for implantable products that are MR-Conditional and allow full-body scans without being compromised by the magnetic field of the MRI machines.

In the Diabetes group, Medtronic had sales of $496 million, a 6% growth from the same period a year ago. Outside the U.S., the MiniMed 640G System with Enhanced Enlite continuous glucose monitoring sensor performed well and the company is on track to file a premarket approval application for its MiniMed 670 insulin pump to FDA before the end of June.

In the Minimally Invasive Therapies Group, sales increased to $2.45 billion, a 3% growth from the same period a year ago. The segment benefited from the overall market trend of moving open, invasive surgeries to minimally invasive procedures.

However, the company grew only modestly in its Restorative Therapies Group, that include its spine and neuromodulation businesses, which have continued to perform poorly. The spine business saw sales fall 1% to $737 million, from the fourth quarter of 2016. Neuromodulation sales declined 5% to $494 million from the comparable, year-ago period.

The end of April is also the end of Medtronic's fiscal year and the company's CEO described it as a "transformative year" where it was busy integrating the largest medtech acquisition ever--the $49 billion Covidien buy--along with doing many other things.

"It was a year where, in addition to executing a large, complex integration, we closed 14 additional acquisitions, totaling $1.5 billion," CEO Omar Ishrak said in the earnings call with analysts. "It was a year where we launched a number of ground-breaking new products, and extended our thought leadership within value-based healthcare."

Despite the progress, analysts were a bit concerned about the company's gross margins margins in the quarter. Non-GAAP GM was 68.8%, well below consensus' 69.8%, a result that Sean Lanvin, an analyst with BTIG found "surprising" while some ascribed a portion of this decline to currency fluctuation.

"Gross and operating margins again fell below not only us and consensus [estimates] but also management guidance for the quarter, which could reinforce what we believe are ongoing investor concerns about the company's ability to deliver on its positive operating leverage targets post-COV [acquisition]," wrote Antalffy.

Arundhati Parmar is a senior editor at UBM.

Like what you're reading? Subscribe to our daily e-newsletter.