Inside the OEM: Medtronic

Medtronic, a pioneering force in medical technology, recently unveiled its fiscal quarter 2 and first-quarter earnings during webcasts led by Geoff Martha, chairman and CEO, and Karen Parkhill, CFO. This article examines Medtronic's impressive performances and strategic initiatives, offering a holistic perspective on the company's trajectory.

Strong growth and an emphasis on transformation have been the focus of Medtronic's first two fiscal quarters. The global leader in medical technology has been reporting solid mid-single digit revenue growth, reflecting strong fundamentals and broad-based growth across its markets of cardiovascular, neuroscience, medical surgical, with accelerated growth in diabetes. New product launches were cited as key drivers of growth, and Martha has expressed confidence in maintaining dependable growth for the remainder of the company's fiscal year.

Comprehensive Transformation

Medtronic is actively engaged in a comprehensive transformation, focusing on enhancing global operations, quality, and supply chain. Its growth is being attributed to execution, innovation, and improved underlying fundamentals in markets and the supply chain. At the same time, the company is focused on strategic capital allocation into fast-growing medtech markets, such as robotics, AI, and closed loop systems, to fuel innovation and drive future growth.

Medtronic is also addressing the root causes of past growth challenges. “Capital is being decisively allocated to programs in fast, secular growth markets, and R&D investments are focused on technology megatrends like robotics and artificial intelligence,” said Martha. Large-scale functional improvements are being executed in global operations, supply chain, and quality. Capital is being decisively allocated to programs in fast, secular growth markets, and R&D investments are focused on technology megatrends like robotics and artificial intelligence, he said.

Peering into Medtronic's Portfolio

Medtronic groups its portfolio businesses in three categories: established market leader businesses, synergistic businesses, and highest growth businesses. In its established market leaders — including cranial and spinal technologies, surgical, and cardiac rhythm management — Medtronic has been performing strongly. These businesses made up just under half of its revenue and grew organically 6 percent with strengths in hernia and electrosurgery. Cardiac rhythm management grew 4 percent, with notable success in cardiovascular diagnostics and cardiac pacing.

Key product highlights showcased growth in surgical and cardiac rhythm management segments, with strategic approvals such as the FDA approval for the Aurora EV-ICD™ system marking a pivotal moment. The Aurora EV-ICD system provides the life-saving benefits of traditional ICDs while avoiding certain risks because its lead (thin wire) is placed outside the heart and veins. Patients implanted with the Aurora EV-ICD system have defibrillation, antitachycardia pacing (ATP), and backup pacing therapies available to them via a single implanted device that is similar in size, shape, and longevity to traditional ICDs. The system approval also includes proprietary procedure implant tools.

In synergistic and highest growth businesses, growth was seen particularly in cardiac ablation solutions and structural heart segments. Arctic Front was the first anatomical balloon technology using cryo energy on the market. The balloon featured four jets. Arctic Front Advance™ features improved temperature uniformity with EvenCool™ cryo technology (8 jets), enabling more contiguous lesions.

Medtronic's diabetes business witnessed its highest growth in 10 quarters, with a 7 percent increase, attributing success to the MiniMed™ 780G system. The MiniMed 780G includes Meal Detection™ technology that can automatically deliver correction boluses of insulin without any work needed from the patient, as quickly as every 5 minutes. It includes personalized glucose targets, and the system automatically adjusts insulin delivery all day and night to help prevent highs and lows.

Medtronic raised its fiscal 24 organic revenue growth guidance to 4.75 percent. This reflects the company's momentum and future pipeline, with future growth drivers including the U.S. launch of Hugo™ robotic system and the global rollout of Evolut™ FX in Structural Heart.

The portable and modular Hugo™ RAS system is designed to move between ORs and configured to fit patients and procedures. The Evolut FX system is designed to make TAVR procedures easier to visualize and more predictable. Radiopaque gold markers provide a reference for deployment depth and commissure location. An optimized stability layer increases catheter support during deployment and provides 50 percent less ventricular movement to enable greater control. The re-engineered delivery system expands flexibility for 360° range of motion and increases conformability to the anatomy for a 50 percent reduction in tracking forces in challenging anatomies.

Financial Strength

Parkhill emphasized Medtronic's robust financial performance, with revenue growing by 5 percent, surpassing the company's expectations. Adjusted earnings per share stood at $1.25, exceeding the midpoint of the guidance range.

“Geographic diversification contributed to broad-based growth, with notable performance in Western Europe and Japan,” she said. “Emerging Markets, excluding Russia, experienced a 9 percent growth, with significant contributions from the Middle East & Africa, South Asia, Southeast Asia, and Latin America.”

While gross and operating margins experienced a decline, they exceeded expectations. On a constant currency basis, the adjusted operating margin increased by 40 basis points. Efficiencies in expense structure and a 90-basis-point improvement in selling, general, and administrative (SG&A) expenses focused on stabilizing and improving margins. Parkhill emphasized continued prioritization of investments in innovation and returning capital to shareholders.

Medtronic has underscored it commitment to shareholders through an open approach to additional capital returns and a focus on high-growth, high-return M&A opportunities. The full-year fiscal 24 organic revenue growth guidance was raised to 4.75 percent, reflecting the company's momentum and future pipeline.

Martha expressed satisfaction with the strong start to fiscal year 2024, reporting mid-single digit organic revenue growth for the first quarter. This growth was attributed to execution, innovation, and improved underlying fundamentals in markets and the supply chain.

The performance of core businesses, including cranial and spinal technologies, surgical, and cardiac rhythm, collectively contributed to 6 percent organic growth. Cranial and spinal technologies demonstrated 6 percent global growth driven by the company's AiBLE™ ecosystem. AiBLE™ Surgical Suite is a fully connected surgical suite for the spinal and neurological OR that allows surgeons to increase efficiency, predict more during planning, and have more control over the care that is delivered. It uses intuitive software to plan a surgery customized to each patient. Surgeons can confirm that their surgical plan was executed as predicted with intraoperative tools and technologies and then monitor the success of the procedure against the original surgical plan with advanced software.

The surgical segment grew 7 percent, with particular strength in advanced energy. Notable performances were observed in its cardiac surgery, aortic, ENT, and Peripheral Vascular businesses. Neuromodulation grew mid-single digits with innovations in Pain Stim and Brain Modulation. Businesses in high-secular growth medtech markets contributed to high-single digit growth, making up about 20 percent of revenue.

Growth in strategic areas included structural heart, with transcatheter valves growing 11 percent globally. Neurovascular grew mid-single digits, primarily driven by strength in flow diversion. Cardiac ablation solutions grew 5 percent, with a focus on pulsed field ablation technologies.

Key Insights

Parkhill provided insights into Medtronic's geographic performance, which included high-single digit growth in non-U.S. developed and emerging markets. Adjusted gross margin remained stable year-over-year and ahead of expectations. Operating margin increased by 90 basis points, driven by revenue outperformance and focused expense management. This performance, she said, was driven by “active portfolio management,” including the joint venture with DaVita and the separation of patient monitoring and respiratory interventions.

Medtronic is prioritizing returning a minimum of 50 percent of free cash flow to its shareholders. The company is actively managing its portfolio, including joint ventures and separation plans. Martha and Parkhill said that Medtronic expects inflation and currency pressures, with delayed impacts from later in the fiscal year. Actions are being taken to drive structural changes in global operations and supply chain for gross margin stabilization and improvement.

Conclusion

Medtronic's outlook paints a comprehensive picture of the company's robust performance, growth initiatives, and positive expectations for fiscal year 2024. With a focus on transformation, innovation, and portfolio management, Medtronic is well positioned for continued success and value creation in the dynamic medical technology landscape. Its commitment to shareholders, coupled with strategic guidance updates, underscores Medtronic's trajectory toward sustained growth and long-term value.

This article was written by Sherrie Trigg, Editor and Director of Medical Content. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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