·Revenue of $4.0 Billion Grew 3% on Strength of New Products ·Reiterates Revenue Outlook and Tightens Diluted EPS Guidance ·Emerging Technologies and Emerging Markets Growth of Greater than 20%
MINNEAPOLIS – February 22, 2011 – Medtronic, Inc. (NYSE:MDT) today announced financial results for its third quarter of fiscal year 2011, which ended January 28, 2011.
The company reported worldwide third quarter revenue of $3.961 billion, compared to $3.851 billion reported in the third quarter of fiscal year 2010, an increase of 3 percent both on a constant currency basis and as reported, which is in-line with the company’s estimate of MedTech market growth.
As detailed in the attached table, third quarter net earnings and diluted earnings per share on a non-GAAP basis were $922 million and $0.86, an increase of 8 percent and 12 percent, respectively, compared to the same period in the prior year. As reported, third quarter net earnings and diluted earnings per share were $924 million and $0.86, an increase of 11 percent and 15 percent, respectively, compared to the same period in the prior year.
International sales of $1.702 billion increased 5 percent as reported compared to the same period in the prior year, or increased 7 percent on a constant currency basis after adjusting for a $22 million unfavorable foreign currency impact. International sales accounted for 43 percent of worldwide revenue. Emerging market revenue of $350 million increased 26 percent as reported, or increased 23 percent on a constant currency basis.
“Our newly launched products are clearly capturing the interest of both physicians and patients, setting the stage for solid future performance and continued leadership for Medtronic,” said Bill Hawkins, Medtronic chairman and chief executive officer. “We have advanced our industry-leading pipeline, bringing forward the Solera spinal system, introducing the novel Arctic Front Cryoballoon procedure for atrial fibrillation, launching the Endurant stent graft, and gaining FDA approval for the Revo MRI-compatible pacemaker.”
Cardiac and Vascular Group
The Cardiac and Vascular Group at Medtronic is comprised of Cardiac Rhythm Disease Management (CRDM), CardioVascular, and Physio-Control. The group reported worldwide sales in the quarter of $2.099 billion, which represents an increase of 2 percent as reported and on a constant currency basis. Cardiac and Vascular Group International sales of $1.143 billion were up 4 percent as reported or 5 percent on a constant currency basis. Group performance was driven by strong sales growth in Structural Heart, Endovascular, and AF Solutions, offset by modest declines in CRDM implantables.
CRDM revenue of $1.221 billion declined 2 percent as reported or 1 percent on a constant currency basis. Revenue from implantable cardioverter defibrillators (ICDs) of $735 million was down 2 percent on a constant currency basis. Pacing revenue was $450 million in the quarter, a decline of 2 percent on a constant currency basis. CRDM sales were negatively affected by slower market growth, but partially offset by the adoption of the Protecta™ ICD in Europe, as well as continued growth in the AF Solutions business. AF Solutions results were driven in part by the U.S. launch of the Arctic Front® Cardiac CryoAblation Catheter system. On February 8, the FDA approved the Revo MRI™ SureScan® pacing system, the first and only pacemaker in the U.S. specifically designed for use in a Magnetic Resonance Imaging (MRI) environment.
CardioVascular revenue of $774 million grew 7 percent as reported or 8 percent on a constant currency basis. Revenue growth was driven by solid performance in all businesses and particularly in emerging markets, where revenue growth was 30 percent compared to the same period in the prior year. The Coronary and Peripheral, Structural Heart, and Endovascular businesses grew worldwide revenue 4 percent, 13 percent, and 12 percent, respectively, on a constant currency basis. While the stent market continues to experience year-over-year declines, Medtronic gained share with its highly deliverable Integrity platform. The company’s U.S. market share in bare metal stents was up nearly 9 percentage points compared to the same period in the prior year. Structural Heart revenue was driven by continued solid growth in transcatheter valves as well as revenue from the recent acquisition of ATS Medical. Growth in Endovascular revenue was driven by the U.S. launch of the Endurant stent graft for the treatment of abdominal aortic aneurysms (AAA).
Physio-Control revenue of $104 million increased 4 percent as reported or 5 percent on a constant currency basis. Results were driven by solid growth of the LIFEPAK® 15 monitor/defibrillator in the pre-hospital market and the LIFEPAK® 20e monitor/defibrillator in the hospital market. Management also announced its intention to reinitiate its efforts to divest its Physio-Control business unit.
Restorative Therapies Group
The Restorative Therapies Group at Medtronic is comprised of Spinal, Neuromodulation, Diabetes, and Surgical Technologies. The group reported worldwide sales in the quarter of $1.862 billion, which represents an increase of 4 percent as reported or 5 percent on a constant currency basis. Restorative Therapies Group International sales of $559 million increased 8 percent as reported, or 9 percent on a constant currency basis. Group revenue performance was led by growth in the Diabetes and Surgical Technologies businesses, as well as renewed growth in Spinal.
Spinal revenue of $861 million increased 2 percent both as reported and on a constant currency basis. The company believes global spine market growth has remained stable compared to the prior quarter. Core Spinal revenue declined 1 percent, but included Core Metal Construct growth of 2 percent. Biologics revenue increased 10 percent on a constant currency basis, driven by the acquisition of Osteotech, stabilizing InFuse sales, and a strong performance in Other Biologics. In January, the company launched the CD Horizon® Solera™ Spinal System, part of a family of devices designed to provide spinal stabilization and correction as an adjunct to fusion in patients suffering from painful disorders of the middle and lower back.
Neuromodulation revenue of $401 million increased 2 percent as reported or 3 percent on a constant currency basis. Results were driven by Deep Brain Stimulation systems for movement disorders, and InterStim® Therapy for overactive bladder and urinary retention, and bowel control outside the United States.
Diabetes revenue of $341 million grew 10 percent as reported or 11 percent on a constant currency basis. Growth in the quarter was driven by strong sales of continuous glucose monitoring products as well as solid performance in our global insulin pumps.
Surgical Technologies revenue of $259 million grew 8 percent both as reported and on a constant currency basis. After adjusting for the fiscal year 2010 divestiture of the Ophthalmic business, sales growth was 10 percent on a constant currency basis. The solid growth was driven by strong performances across the portfolio of ENT, Power Systems, and Navigation product lines, as well as balanced growth across capital equipment, disposables, and service.
Revenue Outlook and Earnings per Share Guidance
The company today reiterated its revenue outlook and tightened its diluted earnings per share guidance range for fiscal year 2011.
The company’s previously stated fiscal year 2011 diluted earnings per share guidance of $3.38 to $3.44 did not include the impact from the acquisition of Ardian. After tightening its diluted earnings per share range to $3.40 to $3.42 and then including the estimated $0.02 impact from Ardian dilution in Q4, the company now expects fiscal year 2011 diluted earnings per share in the range of $3.38 to $3.40. The company noted that it is comfortable with the current fiscal year 2011 consensus estimate of $3.40.
In order to align its cost structure to current market conditions and continue to position Medtronic for long-term sustainable growth, the company will be restructuring its business. The restructuring will occur through a combination of cost-saving measures, tighter expense management, and voluntary programs to minimize layoffs. Based on current expectations, the company intends to reduce its workforce by 4 to 5 percent, or 1,500 to 2,000 positions during Q4. The company also expects to recognize a one-time charge in Q4 related to this restructuring.
Earnings per share guidance excludes any unusual charges or gains that might occur during the fiscal year and the impact of the non-cash charge to interest expense due to the accounting rules governing convertible debt. The guidance provided only reflects information available to the company at this time.
“We are delivering on our pipeline to drive share in our core markets and strong growth in emerging technologies,” said Hawkins. “At the same time, we are restructuring our business and leveraging our global infrastructure to be more in-line with market conditions, which positions us well to deliver market-leading performance.”
Medtronic will host a webcast today, February 22, at 8 a.m. EST (7 a.m. CST), to provide information about its businesses for the public, analysts and news media. This quarterly webcast can be accessed by clicking on the Investors link on the Medtronic home page at www.medtronic.com and this earnings release will be archived at www.medtronic.com/newsroom. Within 24 hours, a replay of the webcast and a transcript of the company’s prepared remarks will be available in the “Events & Presentations” section of the Investors portion of the Medtronic website.
Medtronic, Inc., headquartered in Minneapolis, is the world’s leading medical technology company – alleviating pain, restoring health and extending life for people with chronic disease. Its Internet address is www.medtronic.com.
This press release contains forward-looking statements related to expected product introductions and results of Medtronic’s future operations, which are subject to risks and uncertainties, such as competitive factors, difficulties and delays inherent in the development, manufacturing, marketing and sale of medical products, government regulation and general economic conditions and other risks and uncertainties described in Medtronic’s periodic reports on file with the Securities and Exchange Commission. Actual results may differ materially from anticipated results. Medtronic does not undertake to update its forward-looking statements. Unless otherwise noted, all comparisons made in this news release are on an “as reported basis,” and not on a constant currency basis; references to quarterly figures increasing or decreasing are in comparison to the third quarter of fiscal year 2010.