Medtronic Beats Zacks Estimate - Analyst Blog

Medtronic, Inc. (MDT) recently reported third quarter fiscal 2010 earnings per share of 77 cents, beating the Zacks Consensus Estimate of 76 cents and the year-ago earnings of 71 cents.

Sales

Total revenues in the third quarter increased 10% year over year to $3.851 billion. Medtronic witnessed sales growth across all its seven business segments. Cardiac Rhythm Disease Management (CRDM) revenues increased 6% year over year to $1.243 billion, driven by strong demand for implantable cardioverter defibrillators (ICDs). Spinal revenues increased 1% year over year to $842 million. Growth was fueled by higher demand for Biologics products.

CardioVascular revenues increased 28% year over year to $722 million. An increase in revenues can be attributed to strong sales growth across the company’s Coronary, Structural Heart Disease and Endovascular segments.

Neuromodulation revenues increased 11% year over year to $394 million, primarily due to higher sales of Activa PC, RC Deep Brain Stimulation systems and InterStim Therapy products.

Diabetes, Surgical Technologies and Physio-Control revenues increased 12%, 15% and 11% year over year to $311 million, $239 million and $100 million, respectively.

On a geographic basis, U.S. sales contributed roughly 58% to total revenues and increased approximately 3.0% year over year. International sales increased 22% year over year.

Margins

Gross margin in the third quarter increased 60 basis points (bps) year over year to 76.3%. Research and development expenses (excluding IPR&D charges) as a percentage of sales declined 70 bps year over year to 8.9%. Selling, general and administrative expenses as a percentage of sales declined 150 bps year over year to 34.5%.

Balance Sheet & Cash Flow

Medtronic ended the third quarter with cash, cash equivalents and short-term investments of $2.292 billion, an increase of approximately 37% in the first nine months of fiscal 2010. The company had an outstanding long-term debt of $6.396 billion at the end of the reported quarter. Cash flow from operations and free cash flow were $1.488 billion and $1.365 billion, respectively, for the third quarter.

Outlook

Medtronic raised its earnings per share guidance for fiscal 2010 at the lower end of the range. For the year, earnings per share are expected in the range of $3.20 to $3.22, compared to the prior guidance of $3.17 to $3.22.

Medtronic is one of the world’s leading medical technology companies, specializing in implantable and interventional therapy devices and products. The company’s main competitors include St. Jude Medical (STJ) and Boston Scientific Corporation (BSX).

Presently, we are Neutral on Medtronic.

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