Having recently completed a $50 billion acquisition, Medtronic PLC executives are focusing on building high-growth sales capacity in emerging markets while filling in gaps in their existing product lines.
But they're not done with corporate deals, either. The Fridley-run medical device company is still acclimating to its newly expanded debt load, yet some growth will come from buying companies that treat diseases in which Medtronic already has a presence, Chief Executive Omar Ishrak said last week at an investors' conference in New York.
Tuesday morning, as part of a quarterly earnings call, Medtronic officials are likely to talk in some detail about their plans and expectations for the company in the next year — the first full-year guidance and commentary since Medtronic acquired hospital supplier Covidien PLC for $49.9 billion in late January.
Medtronic moved its legal headquarters to Ireland as part of the move, but kept executives' offices in Minnesota. The change in legal domicile gave Medtronic far more flexibility to use its free cash flow, because less income is subject to the United States' 35 percent tax on corporate profits. The three primary outlets for that cash will be future acquisitions, dividends and share buybacks, Ishrak said.
The change "has really given us a significant potential for flexibility into the way we do capital allocation than we had before," Ishrak told investors May 29 at the Bernstein Strategic Decisions Conference, according to a transcript. "As we go forward with our increased Âflexibility in greater free cash flow, as well as increased access to it, we expect to formulate a future strategy … using that flexibility, which we will announce shortly."
Medtronic pleased investors last month with a pre-announcement of quarterly performance focusing only on revenue, not balance-sheet considerations. It remains to be seen how investors will react to the more-detailed information set for release Tuesday.
During the three months that ended in April — the first quarter in which Covidien's revenue was included in Medtronic sales — the combined company recorded $7.3 billion in revenue. That total was about $230 million better than analysts had forecast, and it represented a 60 percent increase from what Medtronic alone earned in the same quarter last year.
Analysts noted that Âformer Covidien business units seemed to perform well under Medtronic management, which was taken as a positive sign for the ongoing Âintegration process.
For example, based on the revenue pre-announcement, Wedbush Securities analyst Tao Levy raised his earnings forecast 3 cents, to $4.47 per share, for the full year that will end in April 2016. Levy is forecasting $29.2 billion in revenue for the year, which would compare with the $20.3 billion in revenue that Medtronic reported in the just-ended year.
On Tuesday, analysts are expecting the company to report earnings of $4.39 per share for the year, and $1.11 for the quarter that ended April 15, according to published Wall Street consensus estimates.
In the long run, Ishrak predicts that sales in emerging markets will grow at double-digit rates for years to come, reaching about $7 billion within five years. "We think that the emerging markets really offer a growth spot for us in the future that is sustainable," Ishrak said at the conference last week.
Joe Carlson • 612-673-4779
Twitter: @_JoeCarlson
