Leading medical devices company Medtronic (MDT) is scheduled to report its fourth quarter and fiscal 2012 results before the market opens on Tuesday, May 22, 2012. The company is expected to earn earnings per share (“EPS”) of 98 cents on revenues of $4.232 billion during the quarter and EPS of $3.45 on revenues of $16.266 billion during the fiscal, according to Zacks Consensus Estimates.
Medtronic met its expectations in two of the last four quarters while missing once. The four-quarter negative surprise of 0.4% implies that the company has missed the Zacks Consensus Estimate by this magnitude over the last four quarters.
Previous Quarter Highlights
Medtronic reported an adjusted EPS of 84 cents in the third quarter of fiscal 2012, in line with the Zacks Consensus Estimate but a couple of cents behind the year-ago quarter. Revenues were $4.029 billion, at par with the Zacks Consensus Estimate. However, after adjusting for revenues from the Physio-Control business, which is now treated as discontinued operations, revenues came in at $3.918 billion, up 2% year over year (1% at constant exchange rates or CER).
Medtronic’s seven divisions – CRDM, Spinal, CardioVascular, Neuromodulation, Diabetes, Surgical Technologies and Physio-Control – generated corresponding sales of $1.192 billion (down 2% year over year or down 3% at CER), $784 million (down 9% or down 10% at CER), $837 million (up 8% reported as well as at CER), $419 million (up 4% reported as well as at CER), $367 million (up 8% reported as well as at CER), and $319 million (up 23% or 22% at CER).
Agreement of Estimate Revisions
Estimate revision trends among the analysts for the fourth quarter and the fiscal have been nominally on the upside. Over the last 30 days, out of 20 estimate revisions, 2 have been revised upward with none in the opposite direction. A similar situation applies for the current fiscal with 1 upward revision over the past month and none in the negative direction.
The upside in estimate revisions, though minor, points towards a gradual improvement in the defibrillator market. This was reflected in first-quarter results of Boston Scientific Corporation (BSX) last month. Although Spine, struggling with its headwinds, will continue to disappoint, sales of the CardioVascular segment will benefit from the recent launch of the Resolute Integrity drug eluting stent for the treatment of coronary artery disease.
Besides, Medtronic has been recording strong growth in the atrial fibrillation (“AF”) solutions business over the past few quarters based on the adoption of Arctic Front in Europe and its ongoing launch in the US. However, the growth rate will moderate in the fourth quarter with the anniversary of the US launch of Arctic Front.
For Medtronic, investor focus will be pinned on the guidance for fiscal 2013. The company is expected to earn EPS of $3.66 on revenues of $16.558 billion during the said fiscal. We also expect the company to provide an update regarding the impact of the 2.3% excise tax that will come into effect on January 1, 2013, on its bottom line.
At the earnings call we look forward to an update regarding the US trial of Medtronic’s CoreValve system. This is significant since Edwards Lifesciences (EW) has already received approval from the US Food and Drug Administration for its Sapien transcatheter heart valve. Besides, Medtronic’s prominent presence in the European market, which is shrouded in macroeconomic challenges, might affect the company’s sales growth.
Magnitude of Estimate Revisions
Given the nominal estimate revisions from the analyst community, though tinged with an element of doubt, the consensus estimate for the current quarter remained static at 98 cents over the past one month. However, the consensus estimate for fiscal 2012 increased by a penny to $3.45 over the past 30 days.
Recommendation
Having witnessed several headwinds in its two biggest segments – CRDM and Spinal – Medtronic is trying every means to revive growth. This includes penetration of international markets, portfolio expansion and restructuring initiatives, which should benefit the company over the long term. Moreover, acquisitions done over the past few years are contributing to total revenues, a positive trend that is expected to continue. Meanwhile, Medtronic has increased its focus on the emerging markets that have been garnering significant growth.
Longer term, we have a Neutral recommendation on Medtronic. The stock retains a Zacks #3 Rank (“Hold”) in the short term.
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