Medtronic (NYSE:MDT) shares took a hit today after the world’s largest medical device maker said its robot-assisted surgery platform has fallen behind schedule, despite fiscal third-quarter results that topped the consensus forecast on Wall Street.
Fridley, Minn.-based Medtronic had predicted first-in-human cases during the fiscal year ending in April, with a full launch following in fiscal 2019. But during a conference call with investors today discussing the Q3 numbers, chairman & CEO Omar Ishrak said the timetable has gotten longer.
“We are enthusiastic about the development of our surgical robotics platform, which we expect will strengthen our strategy of advancing minimally invasive procedures and we continue to make progress towards its launch. While we had intended first clinical use in humans in next couple of months, our final software and hardware integration and testing is taking longer than we initially expected,” Ishrak said. “This is not unusual with systems of this complexity.”
More details are slated to be revealed during the company’s investor day in June, he added.
Ishrak said Medtronic’s other robotics initiative, its deal with Mazor Robotics (NSDQ:MZOR), is starting to bear fruit.
“[T]he distribution relationship is relatively new and it is starting to pull through revenue,” he said. “We haven’t seen the benefit of it yet, we will see it in the coming quarters. There is two tangible way that pulls through revenue: One is when we have placed a few sorts of equipments and that accounts in return for incremental spine shares. So in the last two quarters, we have started doing that with Mazor and that it lags maybe six months before those contracts take effect and we actually see that incremental revenue.
“So we haven’t seen it yet, but it’s locked in if you will. And then going forward around the December or January timeframe, we will have Mazor integrated into our broader spine-enabling technology. So, it’s fully integrated with navigation and operative imaging or O-arm and in that case, the advanced features of that platform will only work with [a] Medtronic implant,” he said.
“So it will be a technology type in with the platform that will further pull through. So, it is starting to drive the revenue, you don’t see in our economic shift, but it will be coming in the coming quarters and those are the two reasons why,” Ishrak explained, according to a Seeking Alpha transcript.
The news sent MDT shares down -1.9% to $81.74 apiece today in mid-afternoon trading.
Q3 beats the Street
Although Medtronic swung to red ink for the quarter on a $2.2 billion hit from last year’s tax reforms, it still managed to top the consensus estimate for both earnings and sales.
Medtronic posted losses of -$1.39 billion, or -$1.03 per share, on sales of $7.37 billion for the three months ended Jan. 26, compared with profits of $821 million on sales growth of 1.2% compared with fiscal Q3 2017.
Adjusted to exclude one-time items, earnings per share were $1.18, a penny ahead of The Street, where analysts were looking for sales of $7.20 billion.
“Our results reflect a solid quarter for Medtronic, and as we expected, a strong turnaround from the first half of our fiscal year,” Ishrak said in prepared remarks. “We continue to execute on our broad, sustainable growth strategy, driving therapy innovation and global market penetration while delivering enterprise synergies to enable margin improvement.”
Medtronic said it still expects to report adjusted annual EPS growth of 9% to 10%, which works out to $4.763 to $4.807 compared with fiscal 2017, on constant-currency sales growth of 4% to 5%.
“Looking ahead, we are confident in our ability to deliver mid-single digit constant currency revenue growth and strong constant currency EPS leverage, this fiscal year and beyond,” Ishrak said. “We remain keenly focused on executing to deliver dependable results as we continue to leverage our global diversification and scale to fulfill our Mission of alleviating pain, restoring health, and extending life for millions of people around the world.”
By the numbers
Here’s how Medtronic’s business segments fared compared with fiscal Q3 2017:
| Segment | Q3 FY2018 sales | % growth | |
| Cardiac & vascular | $2,800 | 9.9% | |
| Cardiac rhythm & heart failure | $1,457 | 6.3% | |
| Coronary & structural heart | $886 | 18.0% | |
| Aortic & peripheral vascular | $457 | 7.3% | |
| Minimally invasive therapies | $2,041 | -15.6% | |
| Surgical innovations | $1,384 | n/a | |
| Respiratory, gasrointestinal & renal | $657 | n/a | |
| Restorative therapies | $1,944 | 7.0% | |
| Spine | $661 | 0.6% | |
| Brain therapies | $585 | 12.9% | |
| Specialty therapies | $398 | 7.6% | |
| Pain therapies | $300 | 10.3% | |
| Diabetes | $584 | 16.6% | |
| $7,369 | 1.2% | ||
