Understanding Medtronic’s Weak CVG Segment Performance in Fiscal 2Q17



CVG segment in fiscal 2Q17

Medtronic (MDT) reported ~$7.3 billion in worldwide revenues in fiscal 2Q17. Of that total, ~$2.6 billion came from Medtronic’s CVG (Cardiac and Vascular Group) segment, representing ~35% of the company’s total revenues. These sales figures represent a ~3% YoY (year-over-year) rise in fiscal 2Q17 on a constant currency basis. But the company expected to register CVG revenue growth at the high end of the mid-single-digit range.

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The United States segment’s sales rose only ~1% on a YoY basis. But Medtronic noted strong YoY CVG segment sales of ~7% and ~9% in non-US developed markets and emerging markets, respectively. The CRHF (Cardiac Rhythm and Heart Failure) division registered lower-than-expected growth rate of around 6%, whereas the CSH (Coronary and Structural Heart) division’s growth was flat. The APV (Aortic and Peripheral Vascular) division registered a strong YoY growth of around 5% on a reported basis.

BD’s major competitors in the cardiovascular market in the US include Edwards Lifesciences (EW), Boston Scientific (BSX), and St. Jude Medical (STJ), which reported YoY sales growth of 20.1%, 11.5%, and 11.9%, respectively, in their most recent quarters. The iShares Russell 1000 ETF (IWB) invests ~0.5% of its total holdings in MDT.

Growth drivers

While the CVG segment’s CRHF division reported weaker-than-expected sales growth, its atrial fibrillation and diagnostics business and its recently acquired Heartware business witnessed strong growth. The division’s sales were weighed down, however, by weakness in the core cardiac rhythm implantables business, which witnessed a low-single-digit fall due to a decline in global implantables. Disruptions in the UK implantables market also led to a revenue decline in mid-teens. These headwinds are expected to continue in fiscal 2017.

The CSH division registered flat sales in fiscal 2Q17 as Medtronic witnessed market share losses due to new product cycle timings. APV division sales were driven by its market-leading IN-PACT Admiral DCB (drug-coated balloon).

In the next article, we’ll look at the fiscal 2Q17 performance of Medtronic’s Minimally Invasive Therapies Group.


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