Medtronic, Inc. (NYSE: MDT) today announced financial results for its first quarter of fiscal year 2012, which ended July 29, 2011.
“Our first quarter results showed growth across many of our businesses. The major exceptions were ICDs and spinal products, where we continued to face challenges”
The Company reported worldwide first quarter revenue of $4.049 billion, an increase of 7 percent as reported or an increase of 2 percent after adjusting for a $186 million favorable foreign currency impact. International revenue of $1.843 billion increased 19 percent as reported or 7 percent on a constant currency basis. International sales accounted for 46 percent of Medtronic's worldwide revenue. Emerging market revenue of $408 million increased 30 percent as reported, or 25 percent on a constant currency basis.
As reported, first quarter net earnings were $821 million, or $0.77 per diluted share, a decrease of 1 percent and an increase of 1 percent, respectively. As detailed in the attached table, first quarter net earnings and diluted earnings per share on a non-GAAP basis were $845 million and $0.79, a decrease of 3 percent and 1 percent, respectively.
"Our first quarter results showed growth across many of our businesses. The major exceptions were ICDs and spinal products, where we continued to face challenges," said Omar Ishrak, Medtronic chairman and chief executive officer. "My top priority is aligning the management team around improving execution and optimizing sources of growth."
Cardiac and Vascular Group
The Cardiac and Vascular Group at Medtronic includes the Cardiac Rhythm Disease Management (CRDM), CardioVascular, and Physio-Control businesses. The Group had worldwide sales in the quarter of $2.206 billion, which represents an increase of 9 percent as reported or 3 percent on a constant currency basis. Cardiac and Vascular Group International sales of $1.231 billion increased 18 percent as reported or 6 percent on a constant currency basis. Group revenue performance was driven by strong Structural Heart, Endovascular, Coronary, Physio-Control, and AF Solutions sales offset by weaker sales in implantable cardioverter defibrillators (ICDs).
CRDM first quarter revenue of $1.253 billion increased 2 percent as reported or declined 3 percent on a constant currency basis. First quarter revenue from ICDs was $697 million, down 8 percent on a constant currency basis, while pacing revenue of $508 million grew 1 percent on a constant currency basis. CRDM sales were affected by declining procedure volumes in the U.S. ICD market, which was partially offset by continued growth of AF Solutions and the continued roll-out of the ProtectaTM ICD and Revo MRITM pacemaker in the United States.
CardioVascular revenue of $850 million grew 19 percent as reported or 11 percent on a constant currency basis. Revenue growth was driven by solid performance in Structural Heart and Endovascular, as well as strong emerging markets growth of 30 percent on a constant currency basis. The Coronary, Structural Heart, and Endovascular & Peripheral businesses grew worldwide revenue 6 percent, 15 percent, and 16 percent, respectively, on a constant currency basis. In Structural Heart, transcatheter valves continued to show strong growth. Endovascular revenue was driven by continued growth from the U.S. launch of the Endurant® stent graft for the treatment of abdominal aortic aneurysms (AAA) and growth in Peripheral, including drug-eluting balloons in international markets.
Physio-Control revenue of $103 million increased 23 percent as reported or 17 percent on a constant currency basis. Results were driven by strong pre-hospital market sales, as the LIFEPAK® 15 monitor/defibrillator and the LUCAS® chest compression system continued to take share. Medtronic continues to pursue the divestiture of the Physio-Control business.
Restorative Therapies Group
The Restorative Therapies Group at Medtronic includes the Spinal, Neuromodulation, Diabetes, and Surgical Technologies businesses. The group had worldwide sales in the quarter of $1.843 billion, which represents an increase of 6 percent as reported or 2 percent on a constant currency basis. Restorative Therapies Group international sales of $612 million increased 22 percent as reported or 10 percent on a constant currency basis. Group revenue was led by solid performances in Diabetes and Surgical Technologies, as well as growth in Neuromodulation, offset by challenges in Spinal.
Spinal revenue of $825 million was flat as reported or declined 3 percent on a constant currency basis. International sales for the Spinal business increased 7 percent on a constant currency basis. Core Spinal revenue of $610 million, which includes core metal constructs, interspinous process decompression devices (IPDs), and balloon kyphoplasty (BKP) products, declined 5 percent on a constant currency basis. Biologics revenue of $215 million grew 2 percent on a constant currency basis, driven by revenue from the Osteotech acquisition, offset by accelerating declines in the sales of INFUSE®, especially following the recent publication of articles in The Spine Journal.
Neuromodulation revenue of $397 million increased 7 percent as reported or 4 percent on a constant currency basis. Growth continues to be driven by strong sales of InterStim® Therapy and Activa® PC and RC Deep Brain Stimulation (DBS) systems for movement disorders. The RestoreSensorTM spinal cord stimulator with our proprietary AdaptiveStimTM technology continues to perform well in Europe, and we expect to launch this breakthrough technology in the U.S. later this fiscal year.
Diabetes revenue of $355 million grew 14 percent as reported or 9 percent on a constant currency basis. Growth in the quarter was driven by strong sales of consumable products and continuous glucose monitoring (CGM) products, including solid international growth driven by the recently launched EnliteTM sensor.
Surgical Technologies revenue of $266 million grew 13 percent as reported or 9 percent on a constant currency basis. Revenue growth was driven by strong performance in international markets, as well as balanced growth across our core platforms of Power, Navigation, Monitoring, Imaging, and Hydrocephalus Management. In July, Medtronic announced the acquisitions of Salient Surgical and PEAK Surgical, which are expected to leverage Medtronic's strength in Surgical Technologies. These acquisitions are anticipated to close later this summer.
Revenue Outlook and Earnings per Share Guidance
The Company today reiterated its revenue outlook and diluted earnings per share (EPS) guidance for fiscal year 2012. The Company continues to expect revenue growth in the range of 1 to 3 percent on a constant currency basis. The Company continues to expect diluted EPS in the range of $3.43 to $3.50, which includes approximately $0.04 to $0.06 of dilution from the Ardian acquisition. After adjusting for Ardian dilution and 10 cents of one-time tax benefits received in fiscal year 2011, fiscal year 2012 diluted EPS growth is expected to be in the range of 6 percent to 9 percent.
EPS guidance excludes any unusual charges or gains that might occur during the fiscal year and the impact of the non-cash charge for convertible debt interest expense. The guidance provided only reflects information available to Medtronic at this time.
"In order to drive growth, we will be focused on three key imperatives - improving execution, optimizing innovation, and accelerating globalization," said Ishrak. "As a company, we need to better adapt to our changing environment. We will significantly change the way we prioritize products in our pipeline, placing the highest emphasis on our ability to demonstrate not just clinical value, but economic value at both the customer and societal level. Ultimately, our goal is to use technology to both improve the standard of care and reduce healthcare costs, providing greater access to our therapies for the billions of people who are currently underserved. When we do this, we believe growth will improve," Ishrak concluded.