Medtronic plc reported second quarter worldwide revenue of $7.647 billion, a decrease of 0.8% as reported and 1.5% on an organic basis. Analysts noted, however, that the figure beat the consensus of $7.08 billion. It also exceeded Wells Fargo’s $7.12 billion estimate.

With the continued uncertainty related to the ongoing COVID-19 pandemic, the Dublin-based company did not provide formal annual or quarterly financial guidance. Still, the need for ventilators pushed the company ahead.

MITG shows strength

During a call on the results CFO Karen Parkhill noted that the Minimally Invasive Therapies Group (MITG) led the way. It saw revenue of $2.285 billion, an increase of 6.7% as reported and 6.2% organic. While it was affected by a decline in procedure volumes, that was offset by increased demand for COVID-19 related diagnostics and therapies.

“MITG led the way with its growth rate increasing by over 20 points in both Surgical Innovations and Respiratory, GI & Renal. SI benefited from increased elective procedure volumes in Europe and the United States, driven in part by elective procedures that were delayed from the spring and early summer,” she noted. She added that Advanced Energy, lung health, airways, ventilators and patient monitoring all saw growth.

The Cardiac and Vascular Group saw second quarter revenue of $2.725 billion, a decrease of 4.6% as reported and 5.5% organic. The company noted that the revenue reflected the decline in procedure volumes as a result of the pandemic.

Meanwhile, the Restorative Therapies Group came in at $2.063 billion, a decrease of 2.3% as reported and 2.9% organic. The Diabetes Group had quarterly revenue of $574 million, a decrease of 3.7% as reported and 5% organic.

Martha highlighted the faster-than-expected recovery, improved revenue growth and advancing pipeline. "Despite the challenges posed by the pandemic, we're well positioned to accelerate growth over the medium- and long-term as we continue investing in and progressing a number of opportunities, creating value for society and our shareholders," he added.

Martha noted that the company was building on its pipeline’s strength, in addition to winning share in several of its businesses. “We're supplementing our pipeline with an increasing cadence of tuck-in M&A,” he affirmed. “And we're in the process of implementing our new operating model and reenergizing our businesses with a competitive focus on market share and being bold.”

Analyst observations

SVB Leerink’s Danielle Antalffy noted that the outperformance is not surprising, given industry-wide beats. However, she did highlight two takeaways.

“Given MDT's earnings cycle is off by one month, the company has greater visibility into November trends, with management noting continued improvement despite the pockets of increasing COVID cases across the U.S. – arguably a positive for the entire med-tech universe,” she wrote.

In addition, Medtronic CEO Geoff Martha is laser focused on putting his company on the offensive, with an eye toward more rapid and nimble innovation. That should drive share gains and position the company for sustainable, above-market growth.

Wells Fargo’s Larry Biegelsen wrote in a note that the company represents “an accelerating growth story trading at a discount to its peers.” He sees promise with new launches, including the Micra AV, the surgical robot, Linq 2.0, the 780G diabetes pump, next-generation Interstim and renal denervation.

China, tuck-ins

Bob Hopkins from BofA Securities asked management to comment on geographic results, particularly with Europe being up and China slipping a bit. Parkhill replied that Europe and certain parts of Asia were up, while China was down as a result of the national tender in drug-eluting stents (DES). Taking away that tender’s impact, Parkhill said that China would have produced stronger numbers.

Biegelsen followed up on China, asking about the possibility of what happened with the DES spilling over into other areas.

“[I]n terms of China, we do think it's more contained for us, at least for a couple of reasons. One, the coronary stent business is one of the few businesses at Medtronic that does have less differentiation, I would say, in the industry,” Martha replied. He went on to note that 80% of the DES market in China was already local.

“So, we do think [that] we don't have a lot of exposure to that type of impact from a tender going forward.”

David Lewis from Morgan Stanley highlighted Medtronic’s steady stream of deals this year and wondered if that would carry over into the next six to 12 months.

While acknowledging that it is hard to predict the future, Martha replied that he foresaw a similar cadence in terms of these tuck-ins. Parkhill followed up that many of its acquisitions this year have been early-stage tuck-ins. “So, these acquisitions are really expected to be larger contributors to revenue in the years ahead. The combined expected revenue contribution for the rest of this fiscal year is small.”

Of note, the company said in late September that it planned to buy Avenu Medical Inc., which focuses on the endovascular creation of arteriovenous fistulae for patients with end-stage renal disease undergoing dialysis. Last week, it reported that it had completed its friendly tender offer for France-based Medicrea International, which focuses on spinal surgery through artificial intelligence (AI), predictive modeling and patient specific implants.

Over the summer, the two reported the all-cash tender offer at the price of €7 (US$8.32) per Medicrea share. Medtronic currently owns more than 90% of Medicrea's share capital and voting rights and will shortly request the implementation of a squeeze-out procedure under French law. That is expected to result in Medicrea becoming a wholly owned subsidiary of Medtronic.

Medtronic highlighted it as its seventh acquisition completed this year and furthers its strategic expansion into AI, machine learning and predictive analytics.