Medtronic Has Guided for Modest Margin Expansion in 2020

Operating margin performance and guidance

In the fourth quarter, Medtronic (MDT) reported a non-GAAP (generally accepted accounting principles) operating margin of 31.5%, a YoY (year-over-year) expansion of 140 basis points on a reported basis and 50 basis points on a constant-currency basis. The company reported a non-GAAP operating margin expansion of 120 basis points on a reported basis and 50 basis points on a constant-currency basis in fiscal 2019 driven by the effective implementation of the enterprise excellence programs. According to its fourth-quarter earnings conference call, the company managed to expand its operating margin despite 20 basis points worth of negative impact from the shutdown of the facility of one of Medtronic’s minimally invasive therapies group business’s key sterilization suppliers and expenses associated with increased tariffs on goods imported from China.

In its fourth-quarter earnings investor presentation, Medtronic guided for an operating margin of 29.4% in fiscal 2020, a YoY expansion of 40 basis points on a constant-currency basis and a neutral impact due to foreign exchange.

Medtronic Has Guided for Modest Margin Expansion in 2020Revenue performance by business

In the fourth quarter, the restorative therapies group, minimally invasive therapies group, cardiac and vascular group, and diabetes group accounted for 27%, 28%, 37%, and 8% of Medtronic’s total revenue, respectively.

In the fourth quarter, the cardiac and vascular group reported revenue of $3.05 billion, a YoY rise of 1.1% on a constant-currency basis but a fall of 2.7% on a reported basis. According to its fourth-quarter earnings conference call, the business suffered due to challenges associated with paclitaxel-coated balloons in its peripheral business, a decline in market share in the left ventricular assist device business due to competitive pressures in the middle of fiscal 2019, and the replacement of ~41,000 cardiac rhythm management devices due to software warning issues. In the fourth quarter, the diabetes group reported revenue of $626 million, a YoY rise of 0.6% on a constant-currency basis but a fall of 2.9% on a reported basis due to a stronger-than-expected performance in the previous year.

The minimally invasive therapies group business reported revenue of $2.26 billion, YoY rises of 5.1% on a constant-currency basis and 0.8% on a reported basis. According to a fourth-quarter earnings investor presentation, the business managed to report a solid performance despite supply challenges mainly due to the performance of its surgical innovations business.

The restorative therapies group business reported revenue of $2.22 billion, YoY rises of 6.5% on a constant-currency basis and 4.1% on a reported basis.