Medtronic(MDT) - 2026 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported revenue of $9 billion, growing 8.7% reported and 6% organic, which is a 50 basis point acceleration from the prior quarter and 50 basis points above guidance [18][19] - Adjusted gross margin was 64.9%, ahead of expectations, with a mix negatively impacting margins primarily from CAS and diabetes [19][20] - Adjusted operating profit was $2.2 billion, resulting in an adjusted operating margin of 24.1%, also ahead of expectations [21] Business Line Data and Key Metrics Changes - The cardiovascular portfolio delivered 11% year-over-year revenue growth, with CAS growing 80% year-over-year, driven by PFA [12][14] - Cardiac rhythm management (CRM) contributed 15% of total revenue and grew 5%, with notable growth in Micro and Aurora EV-ICD [12][13] - The neuroscience portfolio grew 3%, with expectations for pipeline impacts beginning in the fourth quarter [14][15] - The diabetes business delivered 15% reported and over 8% organic growth, driven by international markets and new product launches [17][18] Market Data and Key Metrics Changes - U.S. growth was 6% year-over-year, the strongest performance since fiscal year 2019, excluding COVID comparisons [19] - Western Europe saw high single-digit growth, while China delivered low single-digit growth amid volume-based procurement challenges [19] Company Strategy and Development Direction - The company is focused on driving sustained innovation across its portfolio, with significant investments in R&D and M&A to capitalize on growth opportunities [10][24] - The planned separation of the diabetes business is on track, with expectations for completion by the end of calendar year 2026 [18][24] - The company aims to enhance growth through new product launches, including Hugo and UltraViva, and expanding its market presence [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth trajectory, highlighting strong contributors and businesses poised for improvement [10][11] - The company anticipates continued growth in CAS, CRM, and neurovascular segments, with new product launches expected to drive future performance [10][12] - Management acknowledged challenges in certain areas but emphasized plans to strengthen competitiveness and improve growth trajectories [11][24] Other Important Information - The company is committed to high single-digit EPS growth in fiscal year 2027, despite some anticipated dilution from M&A activities and the diabetes separation [24][68] - Tariffs are expected to impact COGS significantly, with a forecasted $185 million impact in fiscal 2026 [22][23] Q&A Session Summary Question: Comments on accelerating revenue growth next year and high single-digit earnings growth - Management highlighted strong growth in CAS and other segments, with expectations for continued acceleration in FY 2027 [30][32] Question: Monitoring progress for RDN and UltraViva - Management indicated strong leading indicators for both products, including physician training and account openings [42][44] Question: CAS growth and market outlook - Management expects the EP market to grow at least in the high teens for fiscal 2027, with confidence in sustaining CAS growth [52][54] Question: Capital allocation and M&A strategy - The company is focused on tuck-in M&A opportunities and strategic investments to enhance growth in high-potential areas [59][60] Question: EPS growth drivers and market expectations - Management discussed the impact of operational improvements and the expected dilution from the diabetes separation and M&A activities [66][68]