- Medtronic on Tuesday announced it posted fiscal third-quarter revenue of $7.8 billion, an increase of 2% on an organic basis. That missed analyst estimates by $110 million.
- CEO Geoff Martha told investors the company's revenue growth in the three-month period ended Jan. 28, 2022, was slowed by the omicron variant surge in January, particularly in the U.S. Martha said the COVID-19 resurgence not only affected procedure volumes "but also created acute periods of worker absenteeism with our customers, suppliers and in our own operations and field teams." However, with coronavirus cases declining, Martha noted that available hospital and ICU capacity is increasing, and procedure volumes are picking up. Still, the CEO acknowledged that inflation, supply chain challenges and healthcare staffing shortages "will linger."
- Looking ahead, Medtronic expects fourth-quarter organic revenue growth of approximately 5.5%, which is in line with current Wall Street consensus. CFO Karen Parkhill said that while the company is still seeing procedure volumes in the first few weeks of February curbed by omicron, they are beginning to improve. "Our outlook assumes continued procedure volume recovery through March and April and we expect to be back to pre-COVID levels in most of our markets before the end of the fourth quarter," Parkhill added. Stifel analysts in a note said that Medtronic's results in its third quarter "are less bad than some may have feared" and that "with omicron daily infection rates receding, F4Q22 guidance seems achievable."
Medtronic and other medical device companies reporting financial results this earnings season continue to feel the negative impacts of the COVID-19 pandemic on elective procedures. The industry's recovery is being hamstrung by ongoing challenges, including healthcare staffing shortages, inflation and global supply chain constraints.
"We do expect that our markets, our customers and our industry are on the path to recovery," Martha told investors on Tuesday, noting that Medtronic is looking at its portfolio with a more critical eye. "I'd be surprised if there weren't changes over the coming fiscal year, but I don't know yet if they'll be smaller or more significant."
Analysts on Tuesday's earnings call asked the CEO what those changes may entail for the company. However, Martha would not elaborate.
Medtronic's market share performance in the third quarter was mixed. Overall, about 60% of the company's businesses held or won market share in the last calendar quarter. Martha noted that, "while that's down slightly from last quarter, due to some supply constraints and where certain businesses are in their product cycles, it is a significant improvement from where Medtronic was just 18 months ago."
In Medtronic's structural heart business, the company maintained its market share in transcatheter aortic valve replacement (TAVR), growing in the mid-teens in the third quarter. Nonetheless, the company's aortic business lost market share and declined in the mid-twenties in the third quarter "due to supply constraints and continued pressure from our Valiant Navion recall and competitive launches," Martha said.
Despite year-over-year market share loss, cardiac diagnostics gained share sequentially and revenue grew in the low-single digits in the quarter as procedure volumes were impacted by the omicron surge.
However, the diabetes group continued its struggles in the quarter, bringing in revenue of $584 million, a 5% decrease on an organic basis, with high-teens declines in the U.S. partially offset by mid-single-digit growth in international markets.
Martha told investors on Tuesday's call that Medtronic's diabetes group continued to lose market share in the third quarter, as a recent FDA warning letter has cast uncertainty over the business, likely delaying key product reviews and subsequently, their launches.
"We're extremely focused on resolving our our warning letter and bringing new products to the U.S. market, although timing is difficult to predict" the CEO said. "Our MiniMed 780G insulin pump, combined with our Guardian 4 sensor, continue to be under active review with the FDA with approval subject to our warning letter."
Still, Martha contends that while the company's investment in its diabetes pipeline "will take time," Medtronic expects its diabetes business will be "accretive to total company growth and eventually grow with the support market."