Medtronic CEO Ishrak Predicts Rebound From 'Temporary' Revenue Slowdown

By Jof Enriquez,
Follow me on Twitter @jofenriq

Medtronic CEO Omar Ishrak says the company's incoming products will help it rebound promptly from slumping revenue across most product segments during the second quarter.

The company's overall sales amounted to $7.35 billion, lower than analysts' estimate of $7.46 billion, according to Reuters. Ishrak blamed "disappointing" figures on several factors, including product cycle timing, weaker demand in the Middle East on lower oil prices, and limits imposed by UK regulators on bulk items.

"We faced issues that affected our growth, including slower than expected revenue as we await new product introductions, particularly in CVG [Cardiac Vascular Group] and Diabetes," said Ishrak in a news release. "Despite this revenue shortfall, we produced a strong improvement in operating margins and double digit constant currency earnings per share growth."

Worldwide revenue of the CVG business – which sells pacemakers, defibrillators, and heart valves – rose 4 percent to $2.584 billion in the second quarter, below most estimates.

Ishrak told analysts in a conference call that the newly-launched Evolut R XL transcatheter aortic valve replacement (TAVR) is expected to "contribute to U.S. growth in the second half and also the introduction of the Evolut Pro and Resolute Onyx in the U.S. around the end of the fiscal year."

In the diabetes group, one new product that could lift future sales is the MiniMed 670G "artificial pancreas" system, which is slated for commercial launch by spring 2017. However, FDA approval of the device came earlier than expected in September, impacting sales of the preceding version, the MiniMed 630G, which was approved just two months earlier. As a result, Medtronic says it created a priority access program for the 630G, which offers upgrade priority to the 670G when launched.

Medtronic reported that its diabetes group's worldwide revenue grew 3 percent to $462 million, short of expectations.

"We expect diabetes to ultimately return to double-digit growth once the 670G is fully on the market next fiscal year," said Ishrak, according to a Seeking Alpha transcript of the earnings call.

He also mentioned that the minimally invasive therapies business, which grew 4 percent to $1.826 billion worldwide, is launching over 15 new products in the second half to drive growth.

"This quarter is not one that we are happy with like I have said and it’s not one that we are going to repeat," said Ishrak. "And so we are completely confident in our ability to drive sustained mid-single-digit growth and all our strategies are aimed towards that and those strategies cover our ability to produce new products across a variety of market segments."

He added, "A significant shift in our new product cadence will give us enough growth to take us well in the single digit range in the back half. So our excitement around new products is not – and our confidence has not been shaken at all as to their viability and what they can do to the market and to patients."

Ishrak said continued penetration of existing and newer products into emerging markets will also propel growth. For the second quarter, he said China expanded 11 percent, while South Asia, ASEAN, Eastern Europe and Latin America all grew in the mid-teens or higher. Pressure in the Middle East market is expect to persist for the remainder of the year, but is expected to rebound strongly.

Medtronic will continue to evaluate "tuck-in acquisitions" and "bigger strategic acquisitions" and to push its value-based healthcare initiatives tied to health outcomes rather than purely device sales, according to Ishrak.