Leading medical devices company Medtronic (MDT) is expected to report its first quarter fiscal 2012 results before the market opens on Tuesday, August 23, 2011. The company is expected to earn an EPS of 79 cents on revenues of $3.991 billion during the quarter according to the Zacks Consensus Estimate.
In fiscal 2011, Medtronic has surpassed expectations in two of its quarters. The four-quarter negative surprise of 0.21% 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 90 cents during the fourth quarter of fiscal 2011, missing the Zacks Consensus Estimate of 93 cents, but a penny higher than the fourth quarter of fiscal 2010. For fiscal 2011, the company reported a 5% growth in adjusted EPS to $3.37, lower than the Zacks Consensus Estimate of $3.40.
Revenues were $4.295 billion in the quarter, up 2% (flat at constant exchange rates or CER) compared with the year-ago quarter and marginally above the Zacks Consensus Estimate of $4.286 billion.
For the full year, sales increased 1% to $15.933 billion and were higher than the Zacks Consensus Estimate of $15.925 billion. However, the growth rate is 2% at CER and after considering the revenue benefit of $200 million from the extra week in the first quarter of fiscal 2010.
Medtronic’s seven divisions – Cardiac Rhythm Disease Management (CRDM), Spinal, CardioVascular, Neuromodulation, Diabetes, Surgical Technologies and Physio-Control – generated sales of $1.315 billion (down 7% year over year), $875 million (down 1%), $879 million (up 16%), $432 million (up 5%), $368 million (up 11%), $298 million (up 9%) and $128 million (down 4%), respectively.
Agreement and Magnitude of Estimate Revisions
Estimates for the first quarter have been lowered over the past month. Although the economy is witnessing gradual improvement, the challenges being faced by both CRDM and Spinal segments remain the major concern. Over the past month, out of the 23 analysts covering the stock, 5 have lowered their estimates with 1 moving in the opposite direction. In the last 7 days, 2 analysts reduced their estimates for the quarter with 1 positive movement.
We will await an update from the company regarding the status of the CRDM segment, which has been witnessing challenges in the form of pricing pressures in the US market. Several products such as Revo MRI SureScan pacemaker and Protecta ICDs were launched over the past few quarters, which are likely to have some positive impact on the segment.
The company’s CardioVascular segment should experience some benefit following Johnson & Johnson’s (JNJ) decision to stop production of Cypher stent. We also expect an update regarding the US trial of Medtronic’s CoreValve system.
Moreover, the Spinal segment is also under the scanner as several questions had been raised regarding Medtronic’s recombinant bone morphogenic protein-2 (rhBMP-2) in the recent past. Some articles were published on rhBMP-2 in Spine Journal stating that surgeons had missed mentioning the complications encountered with the bone-growth protein in clinical trials.
To address this issue the company has decided to provide a grant to Yale University to conduct two fully independent third-party reviews for the safety and effectiveness of rhBMP-2. The company will provide Yale with all available patient-data from the clinical trials.
Fiscal 2011 has been one of the most challenging years for Medtronic stemming from the macroeconomic downturn and decreased utilization. According to the company’s estimates, its markets are growing in the low-single digit versus 6−7% in the previous year.
We believe that the issues in the core segments are already accounted for in the guidance for 2012. As such, the company is expected to maintain its annual guidance. Besides, the new CEO is also expected to give his opinion regarding the current situation.
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