Earnings Cheat Sheet: Medtronic Looks For A Cure To Its Earnings Underperformance

Medtronic, Inc. (NYSE: MDT) is a medical technology company that engages in the research, design, manufacture and sale of products to alleviate pain, restore health and extend life.  It is among the world’s largest manufacturers of device-based medical therapies, boasting a $37 billion market cap.  MDT also sports a 2.7% dividend and has beaten estimates in nine of the past twelve quarters.

Earnings: 2Q profit of $566 million ($0.52/share) vs. profit of $868 million ($0.78/share) in 2Q09.  Excluding settlements and other negative impacts, EPS was $0.82/share.

Revenue: Up 1.7% to $3.9 billion.

Actual vs. Wall St. Expectations: MDT beat the Street in terms of adjusted EPS, as analysts expected the company to report $0.81/share.  Revenues met expectations.

Notable Stats: Medtronic lowered its full-year EPS forecast, which it had already cut in August, to $3.38-$3.44 from $3.40-$3.48.  Second-half sales growth excluding currency impacts is expected to come in at 2%-4%, roughly in-line with the company’s full-year forecast of 2%-5% growth.

Sales of heart-rhythm disease management products fell 2% to $1.25 billion.

Sales of implantable defibrillators and spinal devices fell by about 1%, offsetting modest gains in other business segments.

Did You Hear That? CEO Bill Hawkins noted that Medtronic’s quarterly report “reflects relative stability in a challenging market environment.”

Analysts at Sanford Bernstein stated that, “spinal sales of $850 million were better than expected, despite the sales decline, after a rough fiscal first quarter.”

Technicals: MDT’s got a chart that only a mother could love, as shares have fallen 23% on the year.  The company’s 10-week moving average broke downward through its 40-week moving average in June, presaging a continued selloff throughout the remainder of the summer.  After hitting a low of $30.80 in late-August, shares began stabilizing, and actually broke their intermediate-term downtrend in late-October on high volume.  Now, having fallen for three consecutive weeks, shares look poised to test their old downtrend-line, the result of which may indicate the direction of the stock’s trajectory in coming months.

Commentary: MDT is leaning heavily on its pipeline and its emerging market strategies to help offset morose economic conditions throughout much of the developed world.  Hospitals are driving harder bargains in the midst of a drop in overall hospital traffic, pressuring margins from both ends of the spectrum.  If MDT can successfully roll out some of the most mature elements of its pipeline, it should be able to broaden end-markets and negotiate higher prices.

A successful test of the August-Novemeber downtrend-line would offer a reason to become interested, and those of you looking for a turnaround play in the biotech space may have an interesting investment to consider.

Disclosure: No holdings in MDT.