Medtronic reports strong 1Q earnings despite delta variant, predicts COVID surge to recede in late August

Medtronic beat expectations for revenue and profit during the company's first quarter as health care procedures returned to prepandemic levels before falling back again in late July due to the spread of the delta variant.

On Tuesday, the share price for the medical device manufacturer was up about 3% in midday trading.

When COVID-19 patients fill more hospital and ICU beds, doctors and medical centers perform fewer procedures using some of Medtronic's key medical products such as heart defibrillators and heart valves implanted via minimally invasive operations.

The spread of the highly contagious delta variant of SARS-CoV-2 means that procedure volumes are taking a hit in U.S. states with low vaccination rates, Geoff Martha, the Medtronic chief executive, said during a call with investors.

"We see the infection rate peaking at the end of August [or] early September, and then hospitalizations will trail that," Martha said during an interview. He added that the volume of medical procedures using the company's products should quickly recover within the company's second quarter, which ends in late October.

Hospitals are better equipped to handle pandemic surges now, Martha said, and COVID-19 vaccines mean patients are more comfortable going into medical centers for usual health care services.

"We do think this is shorter-lived and easier managed than the prior waves," the CEO told investors on Tuesday. Martha added during the conference call: "We didn't start seeing the pullback until the last few weeks of July. At that point, we were pretty much back to 100% or in some cases above 100% of pre-COVID levels in our therapies."

"The company expects the impact to be manageable and less severe than one year ago, and it expects the negative impact to peak in early September," wrote Ashtyn Evans, an analyst with Edward Jones, in a note to investors. "As a result, Medtronic did not increase its earnings guidance as much as expected given the strong quarter."

With operational headquarters in Fridley, Medtronic is one of the nation's largest medical device manufacturers with more than 90,000 employees, including nearly 11,000 across Minnesota.

For the three-month period ending July 30, Medtronic posted $7.99 billion in revenue, up 23% from sales of $6.5 billion during the same period last year.

After adjusting for one-time items, the company posted a profit of $1.9 billion, more than double the year-ago figure of $836 million. At that time, procedures using many Medtronic products were sharply curtailed as hospitals dealt with the first wave of COVID-19.

Throughout the pandemic, COVID-19 patient volumes have affected the number of "deferrable" medical procedures that feature Medtronic products. The devices range from implantable stimulators that treat pain and tiny implants that monitor heart conditions to technology used in spine surgery.

ECMO is a critical technology in hospitals, but not a large business from a financial perspective, Martha said in an interview. Ventilator sales peaked between the end of July and the end of October last year, he said, at nearly four times the normal volume.

With first-quarter results released Tuesday, Martha highlighted how Medtronic saw market share gains for three of its large product lines. The company is touting growth prospects from a new product for robot surgery as well as renal denervation technology to treat high blood pressure.

Earnings per share of $1.41 beat the $1.32 expected among analysts surveyed by Refinitiv.

In May, Medtronic offered financial guidance for the first time since the start of the pandemic, telling investors that per-share earnings in the current fiscal year should rise to $5.60 to $5.75 per share. On Tuesday, the company increased the lower end to $5.65 per share.

Medtronic continues to expect revenue growth this year of 9%.