Medtronic Beats First Quarter Estimates, Optimistic On HeartWare, Mazor
By Jof Enriquez,
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Medtronic's first quarter net income rose due to lower costs and tax payments, enough to offset a slight decrease in sales partly attributed to a down product cycle in the United States. Company executives, however, foresee a rebound in upcoming quarters as new products gain regulatory approval. Also, new acquisition HeartWare is expected to establish itself as a key performance driver going forward.
Net income increased to $929 million in the first quarter ended July 29, from $820 million for the same period one year ago. Profit rose because total costs of products sold fell nearly 8 percent, while the company's tax bill dropped to $59 million, less than half of what the company paid in the same quarter a year earlier, according to Reuters. Revenue dipped 1.5 percent to $7.17 billion, in line with most estimates.
"We feel very good about our momentum to start our fiscal year, and we are confident in our ability to sustain this performance over the coming quarters," said Medtronic CEO Omar Ishrak, in a news release.
Ishrak told investors in June that the company's geographic reach, new business models, and innovation pipeline continue to put it in a “unique position to drive consistent revenue growth.”
He described similar prospects during the first quarter earnings call with analysts yesterday, when he touted favorable market acceptance of the Visia AF single-chamber, leadless implantable cardioverter defibrillator (ICD), Reveal LINQ insertable loop recorder, MICRA Transcatheter Pacing System, and, internationally, the CoreValve and CoreValve Evolut R valves. He expects FDA approval of the Evolut R XL valve to come in early 2017, which will fill a gap in the U.S. market.
Medtronic's Cardiac and Vascular Group (CVG) declined 2 percent and reported worldwide revenue of $2.518 billion in the first quarter. A down product cycle in the U.S. market contributed to the contraction, but Medtronic executives were optimistic that new products and investments will trigger an uptick in coming quarters.
In particular, Ishrak said that HeartWare, whose acquisition closed this week, will add "meaningful revenue growth" to CVG for the rest of the fiscal year and beyond as the company delves deeper into heart failure therapy.
"Not only do we have complementary technologies and service capabilities, including infection control, physiological sensors and algorithms, remote patient monitoring and patient management and integrated diagnostics, but we also have experience with rechargeable battery technology and implantable controllers that can accelerate the development of reliable, fully implantable, LVAD systems," explained Ishrak, according to Seeking Alpha.
Another segment Medtronic has been pushing expansion into is surgical robotics. The company has entered into a complex investment deal with Mazor Robotics to develop and commercialize robotic-based spine systems and applications.
"We're also excited about our partnership with Mazor Robotics which is generating significant surge in interest and together we're set to introduce the Mazor X at NASS [North American Spine Society Annual Meeting] later this year," said Ishrak during the call.
For the Diabetes business, which grew 2 percent to post revenue of $452 million, Ishrak said they were "pleased to receive FDA approval for our MiniMed 630G earlier this month and we expect to see strong U.S. growth of this platform just like we have seen with the 640G outside the U.S."
Ishrak reported double-digit growth in emerging markets led by South Asia, Latin America, Eastern Europe, and China, enough to counteract some pressure in Africa and the Middle East markets.
“We continue to believe strongly that the penetration of existing therapies into emerging markets represents the single largest opportunity in medtech over the long term,” said Ishrak.