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Medtronic Surpassed Analyst Estimates with Strong 4Q17 Earnings

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Fiscal 4Q17 and fiscal 2017 takeaways

Medtronic (MDT) reported its fiscal 4Q17 and full year 2017 earnings on May 25, 2017. In 4Q17, the company registered diluted adjusted EPS (earnings per share) of $1.33. The revenues came in at $7.9 billion.

For fiscal 2017, diluted adjusted EPS was $29.7 billion, representing a constant currency growth of ~3%. EPS for fiscal 2017 came in at $4.60 as compared to fiscal 2016 EPS of $4.37.

As the graph above shows, Medtronic’s EPS in fiscal 4Q17 exceeded Wall Street analysts’ estimate of $1.31 by $0.02. The company’s EPS rose ~5% YoY (year-over-year). However, on a constant currency basis, EPS growth came in at around 6%. Strong productivity, operational performance, and solid revenues helped the company deliver double-digit EPS growth in 2017 and mid-single-digit 4Q17 EPS growth.

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Revenue estimates

In fiscal 4Q17, Medtronic earned revenues of ~$7.92 billion, a YoY growth of 5%. The company exceeded analysts’ revenue estimates of around $7.86 billion as well as the company’s guidance range. The company expected its 4Q17 revenues to witness growth in the lower-mid-single digits on a constant currency basis.

Foreign exchange impact

Medtronic expected to witness a negative foreign exchange impact of $20 million to $40 million on its revenues in 4Q17. However, it saw a currency impact of around $50 million, while acquisitions contributed 110 basis points to its 4Q17 revenue growth.

The company’s 4Q17 performance continued to be fueled by its three growth strategies: therapy innovation, globalization, and economic value. The new therapies growth vector contributed more than Medtronic’s expected range of 200 to 350 basis points. However, the other two core strategies fell short of their expected contributions. Emerging markets contributed ~125 basis points, below the company’s expected range of 150–200. The services and solutions growth vector contributed ~15 basis points to the company’s revenue growth, which was below the company’s target of 40–60.

Peers and ETFs

Peers Becton Dickinson (BDX), Boston Scientific (BSX), and Zimmer Biomet Holdings (ZBH) saw revenues of about $2.97 billion, $2.16 billion, and $1.98 billion, respectively, in their most recent quarters.

Notably, investors can get diversified exposure to Medtronic by investing in the iShares Russell 1000 Value ETF (IWD). Medtronic accounts for about 1.1% of IWD’s total holdings.

In the next part of this series, we’ll discuss the company’s stock price reaction to its 4Q17 earnings announcement.

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