Medtronic PLC (MDT): Consistent Growth Despite Currency Headwinds

Posted on Dec 18 2015 - 1:54pm 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.

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

One can become familiar with the businesses 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 multi-national corporations.

When I listen to the conference call of a company, I take some 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. We can make this a continual feature here at Sharpe Trade with the stocks that we have mentioned in the free Sharpe Income project.

Medtronic PLC (MDT) is a conference call that ‘got by me’ so to speak. They actually reported on the 3rd of December and somehow, and I missed reporting my notes here.  Probably because it falls outside the range of reporting dates for the other companies that I follow.   The stocks price has increased approximately 1.209% since they released earnings.  As I have mentioned previously here on Sharpe Trade, this is a stock that I use in the equities section of my own personal income accounts.

Medtronic PLC (MDT) – 4 Hour Chart


So what’s ‘the low-down’ for the previous quarter?

You can find my notes on last quarter’s earnings here, and as follows are a few notes from my desk as I listened to this quarters Conference Call  …

Medtronic PLC (MDT) – From December 3, 2015

  • $1.00(0) Est. / $1.03 in Actual EPS, growing at 11%, representing 480 BPS of leverage.
  • Revenue of 7.1 Billion in Revenue which represents growth of 6%, at the upper end of their mid-single digit expectations.
  • Strong quarter … consistent performance that they believe is sustainable.
  • Generating strong accessible free cash flow to persue their overall strategy.
  • Foreign Currency Impact is a large impact, as it is to most multi-nationals, but they are implementing operational procedures and looking to minimize impact through their currency hedging operations.
  • As they state each quarter …
  • Three pronged growth strategy – Therapy Innovation, Globalization and Economic Value
  • Based on three trends – 1) continued desire to improve clinical and economic 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 –  Very strong adoption of their new products.  Therapy Innovation accounted for nearly 3/4 of total company growth, contributing nearly 420 BPS, well above the goal of 150 – 350 BPS.  Cardiac and Vascular (C&V) grew 8% and it sees strong adoption of Medtronic products.  They plan on continue to launch new products into the market in C&V.  Minimal Invasive Therapies group (MITG) grew 3%.  Respirative Therapies and Neurovascular and other groups are launching new therapies.  Diabetes Group grew 11%.  Overall, they fully believe that they can continue to hit the upper end of their goals here in TI in the 150 to 350 BPS range.
  • Globalization – Emerging markets actually grew 11%. Contributed 140 BPS to their entire company growth for this quarter.  Just below the baseline goal of 150-250 BPS.  However, considering emerging markets are undergoing significant macroeconomic pressure, this performance should be taken in context, and is actually somewhat impressive given the headwinds.  Diversifying their exposure and product mix, so that no single country or product affects the entire emerging market strategy negatively.  They are looking to broaden in China, and meeting with Governmental Officials to create partnerships there.  Middle East and Africa grew 10%, despite the geo-political uncertainty, much thanks to this growth go to Saudi Arabia.  Many Governments there prioritizing healthcare expenditures.  Latin America grew 11%.  affecting Middle East and Africa. Eastern Europe and Russia saw weakness in revenue, and they are continuing to work this region to deepen ties for growth possibilities.
  • Economic Value – Services and Solutions contributed in at 20 BPS growth below 40-60 BPS goal. CLMS continues to generate rapid growth. Now completed 66 agreements with Hospital systems, with many potential contracts with many providers around the world.
  • Financials and P&L – Once again, w 480 BPS which exceeded the 280 BPS goal.  Lower tax rate, fewer shares outstanding and other factors have improved financial standings.  They expect to exceed their baseline goals moving into the next year.  Covidian integration is going very well.  Serving as a catalyst to re-examine overall operating models and cost structures across entire business. Able to unlock over 9 billion in trapped cash through an internal re-organization of legal entities of Covidian integration, giving them ability to invest in U.S. technologies and products.  Over the next five years, they are expecting to see over 40 billion in free cash flow.  They expect to grow dividend rate faster than earnings, with intent of reaching a 40% dividend payout ratio on a Non-GAAP basis.  Takes 50% of free cash flow to dividends and share buybacks.

Briefly put, Medtronic has executed beautifully.  They are consistently hitting their goals despite a difficult macro environment in Emerging Markets and Europe  …

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