Medtronic(MDT) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The second quarter revenue reached $9 billion, growing 6.6% reported and 5.5% organically, marking an acceleration from the previous quarter and exceeding guidance by 75 basis points [26][28] - Adjusted EPS was $1.36, an increase of 8% and 5 cents above the midpoint of guidance [30][33] - Adjusted gross margin improved to 65.9%, up 70 basis points year-over-year, driven by pricing and COGS efficiency programs [28][30] Business Line Data and Key Metrics Changes - The cardiovascular portfolio grew 9%, the strongest growth in over a decade, with PFA now accounting for 75% of cardiac ablation revenue [17] - Cardiac rhythm management grew 5%, with notable growth in Micra leadless pacemakers (18%) and Aurora EV-ICDs (nearly 80%) [17] - The diabetes business grew high single digits, particularly strong in international markets (11%), while the U.S. saw a decline due to anticipation of new sensor launches [23][24] Market Data and Key Metrics Changes - Revenue growth was balanced geographically, with double-digit growth in Japan and mid-single-digit growth in the U.S., Western Europe, and China [27] - The addressable market for Simplicity in the U.S. is estimated at 18 million people with uncontrolled hypertension, representing a significant growth opportunity [13] Company Strategy and Development Direction - The company is focused on accelerating revenue growth through enterprise growth drivers, including PFA for AFib, Simplicity for hypertension, and AltaViva for incontinence [6][10] - There is an emphasis on tuck-in M&A and strategic portfolio management to enhance growth [6][36] - The company aims to maintain a growth mindset and capitalize on market opportunities while increasing operational expenditures to support growth [6][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the acceleration of revenue growth in the second half of the fiscal year, driven by strong demand for innovative technologies [5][31] - The company anticipates a strong contribution from new products like Simplicity and AltaViva, with expectations for significant market share gains [10][56] - Management highlighted the importance of maintaining a disciplined approach to investments in R&D and SG&A to support growth while managing margins [66][70] Other Important Information - The planned separation of the diabetes business is on track, with expectations for completion by the end of calendar year 2026 [26] - The company is actively pursuing tuck-in M&A opportunities, particularly in high-growth segments like cardiology and neuroscience [75][78] Q&A Session Summary Question: Regarding Simplicity and commercial discussions with payers - Management noted that commercial payers are coming online faster than anticipated, with the Medicare NCD being broader and better than expected, allowing for physician discretion in patient treatment [40][42] Question: About the second-half guidance and base business confidence - Management explained that the second-half guidance reflects strong growth drivers, particularly from PFA, Simplicity, and AltaViva, with expectations for a rebound in the base business [46][52] Question: On investment in SG&A and R&D - Management detailed that investments are focused on capitalizing on growth drivers and maintaining technological leadership, with expectations for SG&A leverage in the second half of the year [66][70]