Medtronic (MDT) reported mixed earnings and lighter-than-expected organic sales growth early Tuesday, sending MDT stock plummeting.
During 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 on a strict, as reported basis, 3% to $7.59 billion. But analysts had expected nearly $7.7 billion.
The company also lowered its profit guidance for the year.
“Our expectations for the quarter were low, but the results were still a disappointment,” Edward Jones analyst John Boylan said in a report. “However, this is not where our focus is as we believe the root causes of this quarter’s issues should resolve themselves over time and most of them are not unique to Medtronic.”
In today’s early stock market trading, MDT shares fell 5.3% near 77.90. Stocks opened at their lowest since March 2020.
MDT Stock: TAVR, Diabetes Offers Bright Spots
Organically, sales rose only 2%, missing Medtronic’s forecast for growth of 3% to 3.5%, Evercore ISI analyst Vijay Kumar said in a report. The main source of the decrease was the medical-surgical and cardiovascular activities of the group. Sales in both were below expectations.
But Kumar noted bright spots in the quarter, including Medtronic’s nonsurgical method of replacing a faulty heart valve and the diabetes business. Sales of transcatheter aortic heart valve replacement, or TAVR, devices grew at a rate from the mid-teens. Sales of diabetes devices fell 5% on a reported basis, with a double-digit decline in the US as there were no new product approvals. But organic sales were up 3%.
Kumar maintained his outperform rating and price target of 105 on MDT stock.
The diabetes business is under pressure. In late 2021, the Food and Drug Administration issued a warning letter following an inspection of Medtronic’s diabetes division. The company is still working on a next-generation continuous glucose monitor called Simplera and hopes to see approval for a new insulin pump called the 780G.
“If the warning letter is removed, a 780G approval and the launch of Simplera could turn this segment into high-single-digit growth,” said Kumar.
Is robotic surgery the next step?
Edward Jones’s Boylan also follows Medtronic’s robotics efforts with a surgical device called Hugo. Hugo helps doctors perform some surgeries. Orders in markets where the robot has been approved appear solid. Medtronic is working for FDA approval.
“These developments, combined with internal improvements that we are seeing, should ultimately return Medtronic to revenue and profit growth,” he said. “That said, 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 does not believe the outlook is reflected in MDT stocks today.
For the second half of the fiscal year, Medtronic expects organic sales growth of 3.5% to 4%, an acceleration from the first half of the year. But the company lowered its adjusted full-year earnings outlook and now sees $5.25 to $5.30 per share. Three months ago, the company led to adjusted earnings of $5.53 to $5.65 per share.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
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