Medtronic (NYSE:MDT) today reported second-quarter financial results that beat Wall Street expectations on earnings but missed on revenue.

On top of the mixed results, the world’s largest medical device company reduced its guidance for the rest of the year. During the earnings call, Medtronic CEO Geoff Martha cited a slower recovery in procedure volumes in some markets. He singled out elective percutaneous coronary interventions, GI procedures, TAVR, spinal cord stimulation and some less emergent surgical procedures.

While it worked through its most acute supply chain challenges (for example, a packaging issue in Surgical Innovations), Medtronic resolved the problems later than expected in the quarter, Martha said.

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Investors reacted by sending MDT shares down more than 5% to $77.89 apiece by the afternoon today. MassDevice‘s MedTech 100 Index, which includes stocks of the world’s largest medical device companies, was up more than 5%.

Medtronic earned $427 million, or 32¢ per share, off $7.585 billion for the quarter ended Oct. 28. 2022. The bottom line was down 67%, and the top line was down 3% compared with Q2 2021.

Adjusted to exclude one-time items, Medtronic saw EPS of $1.30. The results were 2¢ ahead of The Street, where analysts expected adjusted EPS of $1.28 and $7.7 billion in revenue.

Medtronic continues to take decisive actions to improve its overall performance, according to Martha. However, he acknowledged that some of Medtronic’s challenges are its own doing. He mentioned quality and operational challenges.

“I know we have more work to do here. But we understand the root causes of years of underperformance from this company. … I know we will get this right,” Martha said.

Company officials spoke of significant expense reductions to boost earnings and focus on promising growth drivers. Future growth opportunities include surgical robotics, where Medtronic recently secured an FDA investigative device exemption for a clinical trial. Martha was also bullish over pulsed-field ablation and two areas that have experienced challenges: diabetes devices and renal denervation.

Medtronic reducing guidance

Medtronic now expects a stronger dollar to negatively affect its full-year results more than previously expected. The company now expects fiscal year 2023 second-half revenue growth to be 3.5–4.0%. It also reduced full-year adjusted EPS to $5.25–$5.30, down from the previous $5.53–$5.65 guidance.

“We continue to expect organic revenue growth acceleration, with the second half growing faster than the first. However, given a slower pace of market and supply recovery, we’re reducing our revenue expectations for the remainder of the year,” said CFO Karen Parkhill.

“On the bottom line, we are driving expense reductions throughout the company to help offset the lower revenue and the effects of cost inflation. We are also committed to investing appropriately for the long-term, allocating capital to our most promising growth drivers and executing tuck-in acquisitions, all designed to reach more patients and create greater value for our shareholders.”

BTIG analysts kept their Neutral rating on MDT shares. They said the guidance cut was expected, but the magnitude was higher than feared.

Mike Matson at Needham & Co. stuck with his Hold rating. He believed that the company’s previous guidance had simply been too optimistic.

Where is Medtronic delivering results?

Despite the challenges during Q2, Martha insisted to analysts that the company has businesses where strategy and execution are yielding results. He said moving to a new operating model in recent years has yielded highly focused, accountable, empowered operating units.

For example, Cranial and Spinal Technologies grew 5% in Q2, despite a negative impact from the Chinese market. In fact, core U.S. sales were up 15% for spine. Martha credited the introduction of a spine technology ecosystem called Aible. The Aible offering combines planning, implants, navigation, surgical robotics, interoperative imaging and surgical tools, and patient followup.

“Aible brings spinal surgery together in one seamless and connected platform,” Martha said.

TAVR was up 15% — including 17% in the U.S. Medtronic in September announced the full U.S. launch of its Evolut FX TAVR system. Martha said the next-gen TAVR is driving 18% U.S. sequential revenue growth. “We expect Evolut FX to drive momentum for us over the coming quarters.”

Cardiac Rhythm Management enjoyed 4% growth, with Micra leadless pacemaker sales up 18%. In addition, the company expects a commercial introduction of its Aurora extravascular ICD in the back half of its present fiscal year.

Medtronic’s future growth opportunities

Martha stuck by Medtronic management’s assertion that the medtech giant has strong future growth drivers. Areas that could boost the top line going forward include:

Pulsed-field ablation

Pulsed-field ablation (PFA) has generated a great deal of excitement in the AFib treatment space. Martha said the company expects pivotal clinical trial results for its PulseSelect PFA system during the first half of 2023. He said the company is on the track to be one of the first companies with a PFA catheter in the U.S. market.

In addition, Medtronic’s $1 billion acquisition of Affera will enable it to eventually offer a fully integrated system that provides high-density mapping and pulsed-field and radiofrequency ablation — all in a single device.

Diabetes

Analysts have suggested that Medtronic should spin off its Diabetes business. Instead, Medtronic is investing heavily in next-generation diabetes-management products.

When it comes to resolving an FDA warning letter, the company has addressed 100% of the agency’s concerns and is seeking a reinspection. Meanwhile, the next-gen MiniMed 780G insulin pump with Guardian 4 sensor drove 15% international growth for the Diabetes business. FDA is actively reviewing Medtronic’s submission for the 780G.

“We remain focused on restoring strong growth for this important franchise in the coming years,” Martha said.

Surgical robotics

Martha reported positive momentum scaling manufacturing, winning regulatory approvals and ramping installations for its Hugo robotic surgery system.

Just last week, the company secured an FDA investigational device exemption for Hugo product enhancements.

“This allows us to start our U.S. urology clinical trial by the end of the calendar year. It’s a catalyst for continued progress for our international sales.”

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Renal denervation

Martha cited COVID and medication changes for disappointing SPYRAL HTN-ON MED clinical trial results. Still, he said the data overall has been impressive.

“The current state of care for reducing blood pressure — it just isn’t working. … Patients don’t seem to stay on multidrug therapy for long periods of time and eventually just stop taking their medications,” he said. “That’s the advantage of RDN. It’s always on. … We’ve submitted our PMA to the FDA, and we’re looking forward to working with governments and payers around the world who are searching for improvements to control high blood pressure.”

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Medtronic is the largest medical device company in the world, according to the latest Medtech Big 100 ranking from Medical Design & Outsourcing.