Medtronic beats earnings estimates, talks up innovation

Geoff Martha, the Medtronic executive who is poised to become CEO in April, promised investors on Tuesday that the medical-technology company run from offices in Fridley will maintain a "laser focus" on increasing organic sales growth, particularly by inventing new devices.

"We are looking to place even more emphasis on innovation-driven growth," Martha told investors Tuesday morning, in his first earnings-call remarks since being named the next chief executive. "Technology has always been the lifeblood of this company, and growth is the name of the game in med-tech."

A key part of the game plan will be diabetes — a potentially huge market where Medtronic hopes to reinvigorate its growth.

Diabetes is a disease affecting at least 400 million people worldwide, many of whom need to monitor blood-sugar levels and regularly inject insulin to prevent acute and long-term health problems. Medtronic sells MiniMed insulin pumps for patients who benefit from constant insulin delivery, and Guardian continuous glucose monitors that detect and transmit blood sugar levels in near real time.

Both product lines have faced competitive pressure this year, slowing the growth in diabetes-device revenue. On Tuesday, as Medtronic posted revenue and earnings that topped analysts' estimates for the three months ended Oct. 25, the results showed revenue growth of just 4% in its $596 million diabetes business, compared with 26% growth in the same division for the same period a year ago.

"Reinvigorating our diabetes business is a priority," Martha said Tuesday. "This is a rapidly growing market that has huge long-term potential, and I'm confident in our ability to leverage our strengths and get back to leading the innovation in this space."

The diabetes group got a new top executive on Oct. 21, when Sean Salmon moved over from the top job in Medtronic's coronary and structural heart division, a $955 million business that grew 7% organically in the second quarter.

Total company revenue was up 4% on a currency-adjusted basis compared with the same quarter last year, slightly above consensus estimates published before the premarket earnings call Tuesday. Earnings per share climbed more than 7% on an adjusted diluted basis, to $1.31, 3 cents per share above the analysts' forecast for the quarter.

"The first half of this fiscal year has gone well," current Chief Executive Omar Ishrak said, delivering his penultimate quarterly earnings call at the med-tech company before he becomes executive chairman at the end of April. "As we look forward, we are even more excited about what lays ahead, as investments in our pipeline begin to pay off by accelerating revenue growth and creating value for shareholders."

All four of the med-tech company's product divisions showed revenue growth in the quarter that ended Oct. 25, and three of them got upgraded revenue guidance for the rest of the year. Sales of products for the heart, for pain relief and minimally invasive surgery make up 92% of Medtronic's revenue, and each saw upgrades in sales guidance of at least half a percentage point each on Tuesday.

Analysts with Leerink Partners estimated that the broader med-tech market grew 5% during the quarter. And while other large med-tech companies are currently trading at prices about 24 times their 2020 earnings-per-share estimates, Medtronic's price-to-earnings ratio hovers closer to 20.

"If [Medtronic] can continue to successfully execute on a steady stream of new product launches, the company should eventually be increasingly well-positioned to drive growth acceleration," Leerink analysts wrote in a note to investors Tuesday morning.

Medtronic is also projecting strong near-term growth from product launches including its MiniMed 780G automated insulin pump, the Reveal Linq II insertable cardiac monitor, and neurostimulation devices for the spinal cord and brain.

Medtronic reiterated its revenue forecast for fiscal 2020 and increased its adjusted earnings per share for 2020 to a range of $5.57 to $5.63, up 3 cents from prior estimates on both ends of the range.

The company's stock closed at $111.07 Tuesday, down 18 cents on the day.