Medtronic (MDT) Down 4% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Medtronic (MDT). Shares have lost about 4% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Medtronic due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Medtronic Q1 Earnings Top Estimates, Margins Expand

Medtronic reported adjusted earnings per share of $1.13 in first-quarter fiscal 2023, beating the Zacks Consensus Estimate by 0.9%. However, adjusted earnings plunged 19.9% from the year-ago figure of $1.41 per share. Currency-adjusted EPS came in at $1.16 for the quarter.

Without certain one-time adjustments — including restructuring and associated costs, amortization and restructuring expenses, acquisition-related costs and certain medical device regulation charges, among others— GAAP earnings per share was 70 cents, reflecting a 25% surge from the year-ago reported figure.

Total Revenues

Worldwide revenues in the reported quarter grossed $7.37 billion, down 4% on an organic basis (excluding the impacts of currency) and 7.7% on a reported basis. Meanwhile, the top line exceeded the Zacks Consensus Estimate by 2.3%.

The Q1 organic revenues, according to the company, reflect the unfavorable market impact of supply chain shortages, coupled with a strong comparison with high ventilator sales and a rebound in market procedures post the third COVID-19 wave in the year-ago period.

Q1 in Details

In the quarter under review, U.S. sales (51% of total revenues) declined 8% on a reported basis (down 9% on an organic basis) to $3.77 billion. Non-U.S. developed market revenues totaled $2.33 billion (32% of total revenues), depicting a 10% drop on a reported basis (up 2% on an organic basis).

Emerging market revenues (17% of total revenues) amounted to $1.28 billion, down 1% on a reported basis (up 2% organically).

Segment Details

The company generates revenues from four major segments, namely Cardiovascular Portfolio, Medical Surgical Portfolio, Neuroscience Portfolio and Diabetes.

In the fiscal first quarter, Cardiovascular revenues fell 1.3% at CER to $2.71 billion, reflecting low-single-digit organic decline in Cardiac Rhythm & Heart Failure (CRHF) and Coronary & Peripheral Vascular (CPV) and flat year-over-year organic performance in Structural Heart & Aortic (SHA).

CRHF sales totaled $1.39 billion, down 1.3% year over year at CER. Revenues from SHA were down 0.4% at CER to $741 million. CPV revenues were down 2.6% at CER to $579 million.

For the Cardiovascular segment, we projected $2.73 billion of revenues in the fiscal first quarter.

In Medical Surgical, worldwide sales totaled $2 billion, down 8.9% year over year at CER. The quarter registered high-single-digit declines in Surgical Innovations (SI) and Respiratory, Gastrointestinal & Renal (RGR). Excluding the impact of ventilator sales, Medical Surgical’s first-quarter revenues declined 7% year over year organically.

In Neuroscience, worldwide revenues of $2.12 billion were down 1.1% year over year at CER, driven by mid-single-digit organic declines in Cranial & Spinal Technologies (CST) and Neuromodulation, partially offset by mid-single-digit increases in Specialty Therapies, all on an organic basis.

For the Neuroscience segment, we projected fiscal first-quarter revenues of $1.99 billion.

Revenues in the Diabetes group rose 0.3% at CER to $541 million. Due to the lack of new product approvals, United States revenue declined in mid-teens in Q1, offset by low-double digit organic growth in non-U.S. developed markets and mid-teens organic growth in emerging markets. The company’s international sales were led by mid-twenties sales growth of continuous glucose monitoring (CGM) products and low-double-digit growth in consumable sales, offset by low-single digit declines in durable insulin pumps sales.

Margins

Gross margin in the reported quarter contracted 161 basis points (bps) to 65.9% on a 9.9% fall in gross profit to $4.86 billion.

Research and development expenses fell 7.7% to $692 million. Selling, general and administrative expenses rose 0.8% to $2.57 billion.

Adjusted operating margin contracted 454 bps year over year to 21.7%.

Guidance

Medtronic has reaffirmed its fiscal 2023 financial guidance for revenue growth and EPS.

The company continues to expect organic revenue growth in the band of 4-5% from fiscal 2022. Considering current foreign exchange rate, fiscal 2023 revenues are expected to be negatively impacted by $1.4 to $1.5 billion (compared to the prior expectation of $1.0-$1.1 billion impact). The Zacks Consensus Estimate for the company’s fiscal 2023 worldwide revenues is pegged at $31.97 billion.

Full-year adjusted earnings per share projection has also been maintained in the range of $5.53 to $5.65, including an estimated 17 to 22 cents negative impact from foreign exchange. The Zacks Consensus Estimate for the year’s adjusted earnings is $5.55.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Medtronic has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Medtronic has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Medtronic PLC (MDT) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research