Medtronic PLC (MDT): A Strong Beginning to Fiscal 2016

Posted on Sep 11 2015 - 1:02pm by Sharpe Trade

For years, I have stated that new retail investors should tune into companies quarterly conference calls, presented to shareholders. The benefits are numerous and many.

It only generally takes one hour or so, every three months.

News items that hit the market do not catch you as much by surprise, leaving you to wonder “Why did this happen?

One can become familiar with the business with which one is invested.

One can listen to the board members of various corporations around the planet, as they attempt to manage businesses worth billions of dollars. You’re not listening to some doofus and his thoughts on the economy who has no stake in issues facing the economy. You’re not even listening to my thoughts on the economy. You are listening to board members discuss the very real issues they face as they manage corporations worth billions.

When I listen to the conference call of a company, I take some brief notes.  And therefore … I thought that to help out new folks as they navigate conference calls, I would start posting my notes, as I’ve taken them. Perhaps, we can make this a continual feature here at Sharpe Trade with the stocks that we have mentioned in the Sharpe Income project.

Last last week, it was the Medtronic PLC (MDT) call, that you can find here.

Medtronic PLC (MDT) – 4 Hour Chart

Medtronic MDT Earnings Chart

So what’s the story for this quarter?

A few brief notes from my desk as I listened to the conference call …

      Medtronic PLC (MDT) – September 4, 2015

  • $1.01(3) Est. / $1.02 in Actual EPS.
  • This first quarter … 7.3 Billion in Revenue which represents growth of 12%.
  • Strong quarter … achieved the high end of their objectives.
  • CVG and diabetes were in the high single digits while RTG and MITG grew in the mid single digits
  • Performance in the U.S. was very strong … high single digit revenue growth.
  • Three pronged growth strategy – Therapy Innovation, Globalization and Economic Value
  • Based on three trends – 1) continued desire to improve clinical outcomes 2) the growing demand for expanded access to healthcare and 3) the optimization of cost and efficiency in healthcare systems, including the move to value-based healthcare
  • Therapy Innovation –  Therapies growth vector – approx 1,020 BPS for total company growth and goal was only 150 BPS to 350 BPS of growth with a full pipeline.  – Cardiac Vascular – New launches and more on the way.  – Minimally invasive – Doing well, with full pipeline – Those and other therapies doing well, and they expect sustained growth here.
  • Globalization – All in all, fell just shy of performance baseline, said due to delay in distributor sales in Saudi Arabia, affecting Middle East and Africa.  Did see improvements in China, India and Russia.
  • Economic Value – Services and Solutions:  Fell just shy of their baseline growth projections.  Stated they are ‘the’ ideal partner for Cath Lab services for hospitals, so they are expanding that business globally.  They have signed the first three operating room managed services in Europe.  Diabetes solutions … looking to expand business across Europe in partnership with IBM.
  • ‘States’ the integration with Covidian going ‘extremely well’.  Still aiming for $850 in savings. Real Estate savings in closing over 60 facilities that were redundant. Goal remains to focus on the legacy Covidien peripheral vascular sales force to drive sales of drug-coated balloons and leveraging Covidien’s Neurovascular Division to enhance Neuroscience strategy in RTG.
  • Financials – Once again, we hear of currency headwinds which they expect are affecting them by 13 to 14 cents in EPS.  $1.1 Billion in free cash flow in first quarter.  Expects HUGE increases in dividends and remains committed to 50% return to shareholders and aiming for 40% dividend payout ratio.  Broke down the segments by performance after 17 minutes, 30 seconds.  Something that jumped out at me was that Minimally Invasive Therapies Group grew in the mid single digits and accounted for 34% of the total company revenue.  Operating Margins were 27.2%.  SG&A improvement reflected, all on constant currency basis.  They do hedge operating results in developed currencies, and have benefited from this hedge.  Expect revenue growth in the range of 4% to 6% for 2016 fiscal year.  They expect a strong year.
  • Questions and Answers – Biggest headwind is Foreign Exchange (FX).  Segment / stroke questions can be referenced here.  Pipeline acquisition questions in regards to Covidian acquisition.  Answer was that is that the first question when it comes to the pipeline, is fitting with the overall strategy first of all … so it’s either sold, eliminated, no dilution to the net effect.  But will be covered in R&D and that hasn’t been really compiled at this point.  Questions on spine “turning this business around” can be referenced in this call, and they discuss spine from the standpoint of implementing new sales procedures in this segment.  As far as emerging markets?  They actually like what they see in China and Latin America, and they still feel entitled to high double digit growth in emerging markets.  

If I was forced to put this quarter into one sentences?

A strong start to the 2016 Fiscal year …

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