Medtronic, Inc. (NYSE:MDT) today announced financial results for its first quarter of fiscal year 2011, which ended July 30, 2010.
“In these uncertain times, the strength of our diversified portfolio, both in terms of business and geography, is more important than ever”
The company reported worldwide first quarter revenue of $3.773 billion, compared to the $3.933 billion reported in the first quarter of fiscal year 2010, a decrease of 4 percent as reported or an increase of 2 percent after adjusting for a $21 million unfavorable foreign currency impact and approximately $200 million of revenue benefit for the extra week in the first quarter of fiscal year 2010. The first quarter of fiscal year 2011 contained 13 weeks, one less week than the first quarter of fiscal year 2010.
As reported, first quarter net earnings were $830 million, or $0.76 per diluted share, an increase of 87 percent and 90 percent, respectively, over the same period in the prior year. As detailed in the attached table, first quarter net earnings and diluted earnings per share on a non-GAAP basis were $868 million and $0.80, a decrease of 2 percent and an increase of 1 percent, respectively, over the same period in the prior year. Further adjusting for the extra week in fiscal year 2010, results in a net earnings and diluted earnings per share increase of 5 percent and 8 percent, respectively, over the same period in the prior year.
Revenue outside the United States of $1.544 billion was flat compared to the same period last year, or an increase of 6 percent after adjusting for a $21 million negative foreign currency impact and the extra week in fiscal year 2010. International sales accounted for 41 percent of Medtronic's worldwide revenue.
"A softer global healthcare market impacted by decreased utilization and increased pricing pressure made for a difficult first quarter," said Bill Hawkins, Medtronic chairman and chief executive officer. "Solid performance from the CardioVascular, Diabetes and Surgical Technologies businesses was offset by softness in other businesses. Despite a difficult quarter, the fundamentals of our business remain strong and we are confident that our diversified portfolio positions us well to deliver market-leading performance in the long run."
Cardiac and Vascular Group
The Cardiac and Vascular Group at Medtronic is comprised of Cardiac Rhythm Disease Management (CRDM), CardioVascular, and Physio-Control. The group had worldwide sales in the quarter of $2.027 billion, which represents a decrease of 5 percent as reported or an increase of 1 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Cardiac & Vascular Group International sales of $1.042 billion were flat as reported compared to the prior year or an increase of 6 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Group revenue performance was driven by strong CardioVascular sales offset by weaker sales in CRDM and Physio-Control.
CRDM revenue of $1.226 billion declined 8 percent as reported or 3 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Revenue from implantable cardioverter defibrillators (ICD) was $722 million, while pacing revenue was $473 million in the quarter. Lower CRDM sales due to slower market growth and increased pricing pressure were partially offset by continued growth of the AF Solutions business and the launch of the Protecta ICD in Europe.
CardioVascular revenue of $717 million grew 4 percent as reported or 10 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Revenue growth was driven by strong international growth of 11 percent as reported, or 18 percent after adjusting for foreign currency and the extra week in fiscal year 2010. The Coronary & Peripheral, Structural Heart, and Endovascular businesses grew worldwide revenue 11 percent, 10 percent, and 10 percent, respectively, after adjusting for foreign currency and the extra week in fiscal year 2010. Strong revenue performance was driven by the Invatec acquisition and transcatheter valves led by the CoreValve device.
Physio-Control revenue of $84 million declined 13 percent as reported or 7 percent after adjusting for foreign currency and the extra week in fiscal year 2010. The revenue decline was due largely to a supplier constraint that has been rectified subsequent to quarter end and a slowdown in spending by certain international governments.
Restorative Therapies Group
The Restorative Therapies Group at Medtronic is comprised of Spinal, Neuromodulation, Diabetes, and Surgical Technologies. The group had worldwide sales in the quarter of $1.746 billion, which represents a decrease of 4 percent as reported or an increase of 2 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Restorative Therapies Group International sales of $502 million increased 1 percent as reported or 7 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Group revenue performance was led by strong growth in Diabetes and Surgical Technologies offset by weaker sales in Spinal.
Spinal revenue of $829 million declined 9 percent as reported or 5 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Sales of Core Spinal products and Biologics decreased 6 percent and 1 percent, respectively, after adjusting for foreign currency and the extra week in fiscal year 2010. Slowing market growth, driven by weaker procedure growth and increased pricing pressures, contributed to the decrease in revenue.
Neuromodulation revenue of $370 million declined 1 percent as reported or increased 5 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Growth continues to be driven by strong sales of Activa PC and RC Deep Brain Stimulation systems for movement disorders and InterStim Therapy for overactive bladder and urinary retention, and bowel control outside the United States.
Diabetes revenue of $312 million grew 6 percent as reported or 12 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Growth in the quarter was driven by strong sales of continuous glucose monitoring (CGM) products. Medtronic remains the only company with a sensor-augmented insulin pump, and the potential benefits of the technology were underscored by the successful results of the STAR 3 study presented at the American Diabetes Association annual conference in June.
Surgical Technologies revenue of $235 million grew 4 percent as reported or 9 percent after adjusting for foreign currency and the extra week in fiscal year 2010. Capital spending in hospitals increased in the quarter, which provided opportunities for technology upgrades driven by new product launches.
Guidance
The company today updated revenue outlook and diluted earnings per share guidance for fiscal year 2011.
For fiscal year 2011, based on estimated market growth of 3 to 4 percent, the company expects revenue growth in the range of 2 to 5 percent on a constant currency basis. The company expects diluted earnings per share in the range of $3.40 to $3.48, which includes approximately $0.05 of dilution from the acquisition of Invatec and ATS Medical. Excluding the approximate $0.05 impact of acquisition dilution and the approximate $0.05 benefit of the extra week in fiscal year 2010, fiscal year 2011 diluted earnings per share growth is expected to be in the range of 9 percent to 11 percent.
Earnings per share guidance excludes any unusual charges or gains that might occur during the fiscal year and the impact of the non-cash charge to interest expense due to the accounting rules governing convertible debt. The guidance provided only reflects information available to the company at this time.
"In these uncertain times, the strength of our diversified portfolio, both in terms of business and geography, is more important than ever," said Hawkins. "Although we have experienced a slowdown in the markets of our largest businesses, the investments we are making in emerging markets and emerging therapies will allow us to achieve market-leading performance over the long-term. We remain confident in our robust product pipeline and look forward to a number of important product launches in the coming months. Our financial strength gives us the flexibility to drive our strategy and meet our financial commitments. The strategic and operational steps we have taken over the past few years have prepared us to succeed in a challenging environment."
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