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What's in the Cards for Medtronic (MDT) in Q4 Earnings?

Medtronic plc MDT is scheduled to report fourth-quarter fiscal 2023 results on May 25, before the opening bell.

In the last reported quarter, the company’s earnings exceeded the Zacks Consensus Estimate by 3.17%. Medtronic surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 0.77%.

Let’s see how things have shaped up prior to this announcement.

Factors at Play

Medtronic has been witnessing an adverse trend of procedure volume across its core business over the past few quarters, impacted by the choppy macroeconomic scenario globally in the form of supply chain disruption, a severe shortage of health professional labor and a record level of inflationary pressure. This continued impact of inflation with increased freight expenses is expected to have affected the fourth-quarter performance.

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Considering how severe the impact of inflation of raw materials and freight has been on the company’s margin in the last quarter, Medtronic, on its fiscal third-quarter earnings call, stated that it expects continued gross margin pressure in the fourth quarter and the next year. The gross margin impact is expected to have translated into a decline in the company’s adjusted operating margin this time around. However, this might have been partially muted by expense control and the benefit of the company’s currency hedging program.

In such a scenario, the company has prioritized its R&D investments. This might get reflected in the fiscal fourth-quarter results.

Medtronic PLC Price and EPS Surprise

Medtronic PLC Price and EPS Surprise
Medtronic PLC Price and EPS Surprise

Medtronic PLC price-eps-surprise | Medtronic PLC Quote

Added to this, severe currency headwinds are expected to have affected profitability further. In this regard, on the fiscal thrid-quarter earnings call, the company noted that the fourth quarter would experience a currency headwind between $165 million and $215 million on revenues.

The company, meanwhile, has been driving significant expense reduction to help offset lower revenues and continued inflation impact. Amid the macro-environmental headwinds in the form of inflation, China VBP and softer procedure volumes in certain markets and currencies, the company claims to have been laser-focused on driving operational and expense efficiencies.

In the to-be-reported quarter, Medtronic expects organic revenue growth in the range of 4.5% to 5.0%, implying strong sequential acceleration, driven by improved product availability based on new launches.

The company’s Cardiovascular portfolio is expected to gain 5.5% to 6% organically in on the continued rollout of Evolut FX and LINQ II. In cardiac rhythm management, the pacing business is expected to have generated strong sales.

In the neuroscience portfolio, the company's market share in Cranial and Spinal technologies is expected to have increased. Demand for the company’s new spine implants is expected to have contributed to the growth. Further, the ecosystem of Aible-enabling technology and the associated pull-through of the company’s best-in-class spinal implants is expected to have contributed to the fourth-quarter top line. The Mazor robotics system and StealthStation navigation system, particularly, are expected to have performed strongly in the to-be-reported quarter.

The company earlier expected its neuroscience revenues to grow in the range of 6.5% to 7% organically in the fourth quarter.

In Medical Surgical and surgical robotics, Medtronic remains focused on the limited market release of the Hugo robot while it scales production. The company recently completed Hugo installations in several geographies like Denmark, France and Italy, which are likely to have added to the company’s top-line growth within this arm. However, according to Medtronic, given increased volume-based procurement in many Chinese provinces, medical-surgical revenues are expected to be down 2.5% to 3% in the fourth quarter.

In Diabetes, MDT might have faced some competitive pressure in the United States, where Medtronic is lacking in terms of latest products due to regulatory complications. However, the company is expected to have seen significant growth in markets outside the United States on the increasing user base of the MiniMed 780G insulin pump, combined with the Guardian 4 sensor. According to Medtronic, overall Diabetes is expected to decline in the low single digits on an organic basis in the quarter under review.

Q4 Estimates

The Zacks Consensus Estimate for Medtronic’s fiscal fourth-quarter total revenues of $8.25 billion suggests a 1.9% rise from the prior-year reported number. The consensus mark for earnings of $1.56 per share implies a 2.6% increase from the year-ago reported figure.

What Our Quantitative Model Predicts

Our proven model does not conclusively predict an earnings beat for Medtronic this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat.

Earnings ESP: Medtronic has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Medtronic currently carries a Zacks Rank #3.

Stocks Worth a Look

Here are a few better-ranked stocks in the broader medical space that have announced earnings and revenue beat in their quarterly results during this reporting cycle. These are Hologic, Inc. HOLX, Merit Medical Systems, Inc. MMSI and DaVita Inc. DVA.

Hologic, carrying a Zacks Rank of 2, reported second-quarter fiscal 2023 adjusted earnings per share (EPS) of $1.06, beating the Zacks Consensus Estimate by 20.5%. Revenues of $ $1.03 billion outpaced the consensus mark by 6.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hologic has an estimated growth rate of 5.1% for fiscal 2024. HOLX’s earnings surpassed estimates in all the trailing four quarters, the average being 27.3%.

Merit Medical reported first-quarter 2023 adjusted EPS of 64 cents, beating the Zacks Consensus Estimate by 16.4%. Revenues of $297.6 million surpassed the Zacks Consensus Estimate by 5.9%. It currently carries a Zacks Rank #2.

Merit Medical has a long-term estimated growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 20.2%.

DaVita reported first-quarter 2023 adjusted EPS of $1.58, beating the Zacks Consensus Estimate by 46.3%. Revenues of $2.87 billion surpassed the Zacks Consensus Estimate by 1.6%. It currently carries a Zacks Rank #2.

DaVita has a long-term estimated growth rate of 14.6%. DVA’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 17.3%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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Medtronic PLC (MDT) : Free Stock Analysis Report

DaVita Inc. (DVA) : Free Stock Analysis Report

Hologic, Inc. (HOLX) : Free Stock Analysis Report

Merit Medical Systems, Inc. (MMSI) : Free Stock Analysis Report

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