Medtronic quarterly revenue beats, margins disappoint

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(Reuters) – Medical device maker Medtronic Plc’s quarterly revenue beat analysts’ expectations as new product launches drove sales across its business units, but weaker-than-expected margins clouded the earnings report.

Sales in its biggest business, the cardiac and vascular unit that sells defibrillators, pace-makers, heart valves and stents, jumped 10 percent to $2.8 billion, partly helped by a successful launch of its Evolut Pro transcatheter heart valve.

The increasingly competitive market for transcatherter valves, used to replace diseased aortic valves without open-heart surgery, is expected to expand from $3 billion currently to $5 billion in 2021 as more types of patients get treated with the valves.

“Our revenue performance is highly dependent on new product launch process and when we’ve got new products, the revenue growth goes up quite significantly especially with respect to the market,” said Chief Executive Officer Omar Ishrak.

Analysts called the revenue beat well-rounded as all four of the company’s business units topped expectations, but some questioned weakness in margins.

“Operating margin came in at 27.9 percent as reported, deteriorated by about 30 bps y/y. But this falls below us by about 30bps and the Street by about 100bps, potentially disappointing folks,” Leerink Analyst Danielle Antalffy said.

The company’s shares were marginally down in early trading.

Sales in the company’s diabetes unit rose 17 percent to $584 million, as its new 670G system, which mimics some of the functions of a healthy pancreas, completed a priority access program.

The company earned $1.17 per share excluding items in the quarter ended Jan. 26, in line with analysts’ expectations, according to Thomson Reuters I/B/E/S.

Net sales rose 1.2 percent to $7.37 billion, beating the average estimate of $7.21 billion.

Medtronic, which redomiciled to Ireland through its Covidien deal, said it recorded a $2.2 billion net charge related to recent changes in the U.S. tax law.

The company reported a third-quarter loss of $1.39 billion, or $1.03 per share, in the quarter, compared with a profit of $821 million, or $0.59 per share, a year earlier.

Reporting by Manas Mishra in Bengaluru; Editing by Savio D’Souza and Shounak Dasgupta