Medical giant hits 2-year low as sales slow — is there a silver lining?

Medtronic (MDT) early Tuesday reported mixed earnings and weaker-than-expected organic sales growth, sending MDT shares lower.


In the fiscal second quarter, Medtronic’s adjusted earnings of $1.30 per share fell 2% year over year but beat expectations by two cents, according to FactSet. Sales fell 3% on a reported year-over-year basis to $7.59 billion. But analysts had forecast close to $7.7 billion.

The company also lowered its revenue estimates for the year.

“Our expectations were low for the quarter, but the results were still disappointing,” Edward Jones analyst John Boylan said in a report. “However, our focus is not here as we believe the causes of this quarter’s issues should be resolved over time and most are not unique to Medtronic.”

At the beginning of the trade of today’s stock market, MDT shares fell 5.3% near 77.90. The stock opened at its lowest point since March 2020.

MDT Stock: TAVR, Diabetes Offer Bright Spots

Organically, sales rose just 2 percent and missed Medtronic’s guidance of 3 percent to 3.5 percent growth, Evercore ISI analyst Vijay Kumar said in a report. The main source of the decline is the medical-surgical and cardiovascular businesses. Sales in both were below expectations.

But Kumar noted that bright spots in the quarter included Medtronic’s non-surgical method of replacing a defective heart valve and its diabetes business. Sales of transcatheter aortic heart valve, or TAVR, devices have grown at a mid-teens rate. Diabetes device sales fell 5% on a reported basis with double-digit declines in the US due to a lack of new product approvals. But organic sales rose 3%.

Kumar maintained his outperform rating and price target of 105 on MDT shares.

The diabetes business is under pressure. In late 2021, the Food and Drug Administration issued a warning letter after an inspection of Medtronic’s diabetes division. The company is still working on a next-generation continuous glucose monitor called the Simplera and hopes to get approval for a new insulin pump called the 780G.

“If the warning letter is lifted, the approval of 780G and the launch of Simplera could turn this segment into high single digit growth,” Kumar said.

Is robotic surgery next?

Edward Jones’ Boylan also oversees Medtronic’s robotics efforts with a surgical device called the Hugo. Hugo helps the doctors perform some operations. Orders in markets where the robot is approved look solid. Medtronic is working toward FDA approval.

“These developments, combined with the internal improvements we’re seeing, should ultimately return Medtronic to sales and earnings growth,” he said. “With that in mind, the recovery has taken longer and with more bumps in the road than we expected, but we continue to believe that patience will be rewarded.”

He doesn’t believe that outlook is reflected in MDT shares today.

For the second half of its fiscal year, Medtronic expects 3.5% to 4% organic sales growth, accelerating from the first half of the year. But the company cut its adjusted full-year earnings outlook and now sees $5.25 to $5.30 per share. Three months ago, the company guided for adjusted earnings of $5.53 to $5.65 per share.

Follow Alison Gatlin on Twitter at @IBD_AGatlin.


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