Medtronic, Inc. (MDT)

Q2 2011 Earnings Call

November 23, 2010 8:00 AM ET

Executives

Jeff Warren – Vice President, Investor Relations

Bill Hawkins – Chairman and CEO

Gary Ellis – Chief Financial Officer

Analysts

Matthew Dodds – Citi

Kristen Stewart – Deutsche Bank

Bob Hopkins – Bank of America

Mike Weinstein – J.P. Morgan

David Lewis – Morgan Stanley

Larry Biegelsen – Wells Fargo Securities

Rick Wise – Leerink Swann

Joanne Wuensch – BMO

Tim Lee – Piper Jaffray

David Roman – Goldman Sachs

Presentation

Operator

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Good morning. My name is Jessica, and I will be your conference Operator today. At this time, I would like to welcome everyone to the Medtronic’s Second Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Mr. Jeff Warren, Vice President of Investor Relations. You may begin your conference.

Jeff Warren

Thanks, Jessica. Good morning. And welcome to Medtronic’s second quarter conference call and webcast. During the next hour Bill Hawkins, Medtronic’s Chairman and Chief Executive Officer and Gary Ellis, Chief Financial Officer, will provide comments on the results of our fiscal year 2011 second quarter, which ended October 29, 2010. After our prepared remarks, we’ll be happy to take your questions.

First, few logistical comments, earlier this morning we issued a press release containing our financial statements and revenue by business summary. You should also note that some of the statements made during this call maybe considered forward-looking statements and that actual results might differ materially from those projected in any forward-looking statement.

Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC. Therefore, we do not undertake to update any forward-looking statements.

In addition, the reconciliations of any non-GAAP financial measures are available on the Investors’ portion of our website at medtronic.com.

Finally, unless we say otherwise, references to quarterly results increasing or decreasing are in comparison to the second quarter of fiscal year 2010 and all growth rates are given on a constant currency basis.

With that, I’m now pleased to turn the call over to Medtronic Chairman and Chief Executive Officer, Bill Hawkins.

Bill Hawkins

Well, good morning and thank you, Jeff. This morning we reported second quarter revenue of $3.9 billion, which represents growth of 1.7% as reported or 2.4% on a constant currency basis. Q2 non-GAAP earnings of $887 million and diluted earnings per share of $0.82 increased 4% and 6%, respectively.

Our Q2 growth reflects relative stability in a challenging market environment. During this time when many of the world’s economies are experiencing softer growth, we are striving to control the controllable while executing on our strategies to deliver sustainable market leading growth across our broad portfolio of businesses.

Our Q2 revenue growth was in line with the med-tech market and reflects overall market conditions that were relatively stable from July through October. We remain confident that as the global macroeconomic environment rebounds, so too with our markets, as the underlying demand for innovative medical solutions is only going to increase.

Despite current market conditions, Medtronic remains focused on extending our leadership across -- position across the large, diverse and profitable chronic disease markets that we serve. New products are clearly making a difference in several of our markets. We gained share sequentially in spine, pacemakers, ICDs, drug-eluting stents, transcatheter valves, surgical valves and insulin pumps.

In spine, we saw sequential growth driven by recent product launches. In CRDM, I was encouraged by our sequential share improvements in the international CRDM market. In diabetes, our new products in the U.S. and international markets are delivering meaningful growth and taking share, as we continue to extend our leadership as the only company with Sensor-Augmented Pumps.

A major area of focus for Medtronic over the last few years has been in reallocating resources to drive growth. Looking ahead, we will continue to invest in emerging therapies and emerging markets, which will be an increasingly important driver of our growth.

Our emerging therapies grew over 20% in Q2 and are now annualizing at $1.7 billion, driven by strong performances in transcatheter valves, AF, InterStim and [subcu] diagnostics. We expect our revenue mix from emerging therapies to double over the next five years.

Our strategy for making smart, disciplined and opportunistic acquisitions is also working. In Q2, we closed on our ATS Medical acquisition and just last week closed on our acquisition of Osteotech. The strategic tuck-ins that we have made since FY09 are expected to contribute over $0.5 billion to Medtronic this fiscal year.

As you saw last night we were excited to announce our intent to acquire Ardian, an impressive company with innovative catheter-based technologies to treat hypertension. This strategic acquisition gives us a considerable head start on a multi-billion dollar opportunity in one of the biggest markets in medicine.

Hypertension is a significant and growing global healthcare problem and a disease that many cannot control with existing drug therapy. The compelling data presented at the American Heart Association and published in Lancet showed Ardian’s Symplicity Catheter significantly reduces these patients’ blood pressures.

We believe the Symplicity Catheter shows strong potential to be a highly effective treatment for uncontrolled hypertension. We further believe that this novel therapy can play a role in reducing the estimated $500 billion annual direct costs to the global healthcare system by avoiding catastrophic downstream cardiovascular events that are highly associated with uncontrolled hypertension.

Ardian is the perfect example of the type of strategic acquisition we consider attractive in a changing healthcare landscape. This therapy addresses a major unmet need in a large growing and underserved global population of patients, while leveraging our existing customers. It also leverages our global distribution scale, as well as our considerable core competencies in operations, RF and catheter R&D and our proven market development capabilities.

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