Previous Statements by MDT
» Medtronic's CEO Discusses Q2 2012 Results - Earnings Call Transcript
» Medtronic, Inc. Shareholder/Analyst Call
» Medtronic's CEO Discusses Q1 2012 Results - Earnings Call Transcript
Finally, unless we say otherwise, references to quarterly results, increasing or decreasing, are in comparison to the third quarter of fiscal year 2011, and all year-over-year revenue growth rates are given on a constant-currency basis.And with that, I'm now pleased to turn the call over to Medtronic Chairman and Chief Executive Officer, Omar Ishrak. Omar S. Ishrak Good morning, and thank you, Jeff. And thank you to everyone joining us today. This morning we reported third quarter revenue of $3.9 billion, which represents 2% growth as reported, and 1% on a constant currency basis. Q3 non-GAAP earnings of $888 million and diluted earnings per share of $0.84 increased 8% and 9%, respectively, after adjusting for the onetime tax benefits in Q3 of last year. From a revenue perspective this was a challenging quarter. But looking down the P&L, we saw solid performance in our gross margin, and our team executed to deliver the bottom line. Our Q3 revenue reflects strength in the majority of our business. But at the same time, we face continued challenges in our 2 largest businesses, ICDs and Spine. Similar to recent quarters, our results were bifurcated, with 2/3 of our business boasting strong performances, growing a combined 9% while the remaining third declined 9%. However, as I will explain, it does appear that both the ICD and spine markets are beginning to show signs of stabilization, which will result in easier comparisons and should improve our growth over the coming quarters. Let me discuss ICDs first. From a revenue perspective, the U.S. market declined in the mid-teens year-over-year, a couple of percentage points lower than Q2. However, our market data indicates the procedure volumes were relatively stable for the third quarter in a row, and we believe that the sequential market slowdown was primarily caused by hospital de-stocking. Looking now at our own performance, our U.S. ICD revenue was down 14% year-over-year and was just under 2 percentage points lower than Q2. But, our implant volumes rose consistently in Q3 and that trend has continued into Q4. In fact, we are currently seeing year-over-year implant volume growth for the first time in over a year. In addition, our U.S. ICD pricing was sequentially flat in Q3, improving from mid-single digit to low-single digit declines year-over-year. As a result, we can conclude that our sequential revenue decline was primarily a result of hospital de-stocking. It is also worth mentioning that even though we faced these revenue headwinds, our U.S. ICD share is up over 1 point in the past year, and we have maintained those gains sequentially despite competitors new product launches and without incurring the typical sequential share declines we see at competitors' fiscal year-ends. Given the fact that the market is showing signs of sequential stability, we are cautiously optimistic that year-over-year declines in the U.S. ICD market should lessen over the coming quarters. This would significantly improve the performance of our U.S. ICD business and with a corresponding impact on our overall corporate growth rate. To put this in perspective, if we can improve our U.S. ICD revenue to flat year-over-year results over the coming quarters, this alone would add nearly 1.5 points to Medtronic's overall growth.
Turning now to Spine. I was not happy with our overall performance, but let me focus my comments on core metal and biologics separately, and each had unique dynamics affecting its performance. In core metal, we estimate that the U.S. market decline in the low-single digits, which is slightly worse than Q2. Our business declined 10% in the U.S., and while we lost nearly 1 point of share sequentially, we did hold share versus the major spine competitors on a comparable basis. A large part of our share pressure continues to come from certain smaller spine companies such as physician-owned distributors, which utilize business models and tactics that are coming under increasingly negative public scrutiny. Looking ahead, we are somewhat optimistic. Given the positive trends we saw in the last month of Q3 and that have continued so far into Q4. Now while we cannot be certain as to the drivers of these trends, and the market pressures remain with reimbursement in price, we do know that our new products are gaining traction. Our product and procedural innovation combined with better sales execution is becoming more visible to surgeons and generating measurable growth in our new product lines. While our Q4 core metal results are likely to still be down year-over-year, assuming current revenue trends continue, we do expect better performance in Q4.Let's now discuss BMP, where U.S. INFUSE sales continue to deteriorate. In Q2, the year-over-year revenue decline was in the upper teens, which worsened to 30% in Q3. We saw an incremental decrease a few weeks after a negative and highly controversial data was presented at NASS in the beginning of Novemeber. This impact was more than we expected at the start of Q3. While the largest declines were realized in late November and December, the declines have been in the 20% to 30% range since the beginning of January. Until we get definitive answers from the Yale study in the first half of FY '13, there will be considerable uncertainty around our INFUSE financial results. As I said previously, we believe in the safety and efficacy of INFUSE for approved indications. But we want to address any controversies by understanding the facts, that is why we commissioned the Yale university study, a very credible third-party, to systematically analyze all available data. Read the rest of this transcript for free on seekingalpha.com