Medtronic Earnings Call Insights: Europe, FY ’13 Guidance

On Tuesday, Medtronic, Inc. (NYSE:MDT) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Europe

Matthew Dodds – Citigroup: First off, on the guidance, the 2% to 4% constant currency, Gary, when you look at the major regions, are you assuming this coming year the U.S. grows little bit versus really not growing last year, and then what’s your assumption for Europe?

A Closer Look: Medtronic Earnings Cheat Sheet>>

Gary Ellis – SVP and CFO: Yeah, well, overall, the 2% to 4% assumption we have there, basically it depends on where you are at in that range. If you’re at the higher end of the range, obviously, you would assume a slight growth in the U.S. If you’re at the lower end, you’re probably assuming that the U.S. is more flat at that point; so low single-digits at best for the U.S. Euro we’re assuming basically more kind of – what they did during the current year which is more in the mid single-digits, and obviously within Europe that will vary by country; a lot of the Northern European countries are still doing very well, Germany et cetera. Obviously, some of the Southern European countries; we’re a little bit more cautious about them, and that’s why we’re given guidance more in the mid single-digits.

Matthew Dodds – Citigroup: Then just one more question on Symplicity. It seems like everyone and their (indiscernible) was launching a renal denervation device at Euro-PCR you paid a lot of money for Ardian. At what point does IP become an advantage for you, do we have to wait for the U.S. or is it possible in Europe we could see some movement on the litigation front.

Gary Ellis – SVP and CFO: Let me kind of respond and then Omar might have comment too, but overall we have strong IP around Ardian and even something we are not doing ourselves. We strongly IP ourselves, plus with Ardian, both in the U.S. and international. So you should we do not, we will address that as we go forward as far as what other people are launching, but we do have strong in both the U.S. and outside the U.S.

Omar Ishrak – Chairman and CEO: I think the only that I’ll add is just to reinforce. That we are investing heavily and our committed to keep our leadership in both our technology as well as in clinical trials and increasing the number of indications.

FY ’13 Guidance

Michael Weinstein – JPMorgan: Let me just clear up on the quarter. So the decision to enter quarter to increase the SG&A spend, did that reflect as well now that your tax rate would come in lower than it did, because that was the principal delta versus street models with tax not SG&A.

Gary Ellis – SVP and CFO: That’s correct Mike we saw two things obviously as we were going through the quarter, we saw the uplift occurring very strongly in some of the new product launches, but at the same time when we clarified the sale-leaseback strategy and so that we would have a, more of a benefit on the tax line it would give us an opportunity to invest little bit sooner than what we had initially thought and that was the plan mid quarter once we knew that the sales lease-back transaction was going to occur.

Michael Weinstein – JPMorgan: Let me ask a couple of questions about the FY ’13 guidance. So number one, how are you thinking about INFUSE and the potential outcomes of the Yale study, one; and two, Gary, I thought we’d see more of a benefit in FY ’13 from the exclusion of Physio-Control on the gross margin line in my off-base there, but I thought that should be about 50 basis point impact?

Gary Ellis – SVP and CFO: Well let me just first of all you know on the gross margin line as far as the impact from Physio-Control, you are right, Physio-Control had a lower gross margin in general in the rest of the corporation and so that has been pulled out, and if you see even on the results now where all the years have been restated to include Physio-Control out, so there is a slight positive having Physio come out of the numbers because it did have a lower margin. But overall we still believe we’re maintaining those gross margins even – for example, Q4 here the 75.9% is still comparable with that FX adjustment versus what we got in Q3 with Physio-Control pulled out. So, I mean the reality is they are comparable, but you are correct, Mike, in that, with Physio pulled out it gets us a slight upward pressure on the margin. On other hand some of the things that we’ve been doing as far as adding some of the newer products, for example, on Surgical Tech and some of those products grow as that business grows. Those are a little bit lower below the overall corporation’s gross margin. So there is a mix benefit that we’re having to deal with as we go forward. But Phyiso did have a benefit on the item – on the gross margin, excuse me, as far as we knew of that business. And the other question was…?

Michael Weinstein – JPMorgan: INFUSE.

Gary Ellis – SVP and CFO: On INFUSE, as far as what our assumptions are, what we have assumed is obviously that until the Yale results come out that we are going to probably – until we anniversary really the INFUSE against when it started to fall, we’re going to continue to see the financial results of that business being down. The good news is we did see – as we indicated in our comments, we did see a sequentially kind of flat as far as the absolute number Q4 versus Q3, but I think it’s fair to say, INFUSE will continue to be a drag and a headwind for us and until we see what the results of the Yale study are, and so right now it will continue to be a drag for at least the next several months – couple of quarters until we get the Yale results and then we’ll have to assess after that what the potential impact would be.

Omar Ishrak – Chairman and CEO: I think the main thing that we’re looking to hear through the Yale study is that the levels of uncertainty before that are somewhat greater, and we hope the Yale study will clarify things factually and will at least make things more certain and predictable.