Industryweek 11129 Medtronic 4

Medtronic’s Profit Tops Estimates as Heart Rhythm Sales Rise

May 31, 2016
After several years of struggle in a market that has been flat or shrinking, sales in Medtronic’s cardiac rhythm and heart failure unit rose 7% to $1.5 billion in the quarter. 

Medtronic Plc, the world’s biggest maker of heart-rhythm devices, reported fourth-quarter profit that exceeded estimates as doctors favored its redesigned pacemakers and implanted defibrillators, making its biggest division also one of its fastest-growing.

Profit excluding one-time items was $1.27 a share for the period ended April 29, the Dublin-based company said on May 31, beating the $1.26 average of analysts’ estimates gathered by Bloomberg. Medtronic’s forecast range for fiscal 2017 earnings, at $4.60 to $4.70 a share, came in a bit short as analysts had anticipated $4.70 on average.

After several years of struggle in a market that has been flat or shrinking, sales in Medtronic’s cardiac rhythm and heart failure unit rose 7% to $1.5 billion in the quarter. Demand for the company’s stents used to clear clogged arteries in the brain, which have offered a breakthrough in treating stroke, and diabetes products also drove sales as health reform increased coverage rates in the U.S.

“Overall health-care demand in the U.S. is something that is on an upward trajectory,” as the population ages and the Affordable Care Act has increased access to insurance, Chief Executive Officer Omar Ishrak said..

New Products

Medtronic has focused on rolling out next-generation products, including a pacemaker that sits entirely in the heart and a replacement aortic valve that, unlike similar devices, can be adjusted during implantation. The company said it also exceeded its cost-cutting goal for the year related to the acquisition of Covidien Plc in January 2015 and has closed on 14 additional acquisitions worth $1.5 billion in the past year.

“We’ve got strong access to free cash flow and we intend to continue the way in which we are doing acquisitions,” Ishrak said in an interview. “Our different business groups will continue to do tuck-in acquisitions to help us sustain our short and long-term growth.”

Medtronic missed analysts’ expectations for operating margins as a handful of items affected the company’s performance more than anticipated. Chief Financial Officer Gary Ellis said margins were hurt by foreign exchange rates on inventory, a higher-than-expected level of obsolete products as newer models were rolled out and charges related to the purchase of Bellco, a privately-held dialysis company.

There are no concerns about improving margins or getting future cost savings from acquisitions, Ellis said.

Key financial metrics for the fourth-quarter include:

  • Net income totaled $1.1 billion, or 78 cents a share, compared with a $1 million loss a year earlier
  • Sales rose 3.6% to $7.57 billion from $7.3 billion a year earlier
  • Cardiac and vascular sales rose 5.4% to $2.74 billion
  •  Minimally invasive therapies revenue rose 3.1% to $2.5 billion
  •  Restorative therapies sales rose 1.1% to $1.8 billion
  • Diabetes revenue rose 6.2% to $496 million.

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