The company’s latest earnings report shows a continuing formula of strong international revenue fueling modest growth overall in fiscal 2013.
Add strong international sales with robust growth in emerging markets and what do you get? Another solid quarter for Fridley-based Medtronic Inc.
CEO Omar Ishrak said the formula gives the med-tech giant just what it needs to weather any downturn in the United States or abroad. That was evident Tuesday as it reported that profits and sales were up from a year ago even as Europe continued to decline.
“There is no question there is softness in the European overall economy,” Ishrak said Tuesday. “We aren’t sitting around waiting for it to improve. We can catalyze growth with information about the value we are providing with our products.”
Overall, international sales accounted for 46 percent of Medtronic’s worldwide revenue in the quarter — and the share keeps expanding. Emerging markets now make up 12 percent of Medtronic’s total revenue and are expected to account for 20 percent of the total within the next several years.
Ishrak, who took over as CEO of Medtronic in June 2011, has a strategy to widen the company’s global reach and expand its product offerings so it can withstand any dips in sales.
“We want to build strength geographically and in the breadth of our businesses,” Ishrak said in an interview. “If we do that, we will be in the mid-single digits of growth that can absorb slowdowns. That’s the kind of business we are trying to build.”
In fact, the numbers reported by the company Tuesday show a continuing trend of improving U.S. sales of heart devices bolstered by continuing strong revenue in Asia and other developing markets. Gary Ellis, Medtronic senior vice president and chief financial officer, said the company expects overall U.S. sales to continue improving, as products that have fueled overseas growth are approved for the domestic market in 2013.
“The turnaround in the U.S. businesses appears well on track and will be further fueled by upcoming new U.S. product launches,” said Derrick Sung, an analyst with Bernstein Research in New York, in a note to investors.
He noted that the European slowdown in January was the biggest surprise of the quarter, and muted the advances seen in the spine and pacemaker markets. However, Medtronic’s spine business, he said, is clearly turning around.
Medtronic’s net income increased to $988 million, or 97 cents a share, from $935 million, or 88 cents, a year earlier. Earnings excluding one-time items of 93 cents a share beat analyst expectations by 1 cent. Revenue for its fiscal third quarter grew 3 percent from a year ago to about $4 billion.
Medtronic’s stock closed at $45.80, down 2.8 percent, or $1.32 a share. The stock fell largely on worries about weakness in Europe.
But Ishrak said the company remains “committed to delivering dependable growth in a changing health care environment as reflected in our third quarter performance. Several businesses and regions contributed to our steady growth this quarter, and we are focused on effectively managing headwinds and tail winds to deliver balanced and consistent overall performance.”
Medtronic’s cardiac and vascular group, which includes sales of heart rhythm devices and drug-coated stents, reported worldwide sales of $2.1 billion, an increase of 3 percent. Medtronic’s restorative therapies group, which includes spine and neuromodulation sales, reported worldwide sales of $1.9 billion, up 2 percent from the same quarter a year ago.
Medtronic officials said they continue to expect revenue growth for the full fiscal year of 2013 of 3 to 4 percent, taking currency differences into account. The company expects earnings per share to remain in the range of $3.66 to $3.70 — growth of about 6 to 7 percent.
James Walsh • 612-673-7428
Bloomberg News contributed to this report.