What Really Disrupted Medtronic’s Diabetes Segment Sales in Fiscal 2Q17?

Medtronic (MDT) reported ~$7.34 billion in worldwide revenue in fiscal 2Q17. Of that total, ~$0.46 billion came from Medtronic’s Diabetes segment, representing approximately 6% of the company’s total revenues. These sales figures represent a ~3% YoY (year-over-year) rise in fiscal 2Q17.

Diabetes sales in the US fell ~3% YoY. But Medtronic noted strong Diabetes segment sales of 11% and 14% in non-US developed markets and emerging markets, respectively, YoY. The segment registered temporary disruption in insulin pump sales due to the early approval of MiniMed 670G by the FDA (US Food and Drug Administration). Still, the robust product pipeline and the strong growth strategy of the Diabetes segment should help momentum in sales going forward.

Medtronic’s major competitors in the diabetes device market include Edwards Lifesciences (EW), Abbott Laboratories (ABT), and Boston Scientific (BSX), which reported YoY sales growth of 20.1%, 3%, and 11.5%, respectively, in recent quarters. The Health Care Select Sector SPDR Fund (XLV) invests approximately 3.9% of its total holdings in MDT.

FDA approved Medtronic’s MiniMed 670G on September 28, 2016. It’s the first hybrid closed-loop insulin delivery system. For a brief description of the product, read “Medtronic’s Latest Developments on the Diabetes Front.”

MiniMed 670G got approval earlier than expected, which led to the gap in product’s approval and supply arrangements. To resolve the problem, Medtronic has created a “Priority Access” Program for the 630G, which will offer upgrade priority to the 670G when it gets launched. Thus, some of the 630G revenues will be deferred to the realization of the 670G upgrade upon launch. For this reason, the company witnessed some weakness in Diabetes sales in fiscal 2Q17, thought it expects to realize substantial gains in the rest of the fiscal year and to return to double-digit growth.

Next, let’s look at Medtronic’s operating margins in fiscal 2Q17.