Medtronic Earnings Call Nuggets: Pricing Details and Inventory Levels Outlook

Medtronic, Inc. (NYSE:MDT) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Pricing Details

Matthew Dodds – Citigroup: I wanted to focus first on pricing. Omar and Gary, you both highlighted CRM sound a little better in the U.S., down 2%. Can you comment on what pacing was in the U.S., maybe what stents were and then broadly, how Europe is behaving? I’m trying to see if some other comments from your competitors about pricing looking a little better, if you agree with that view broadly?

Omar Ishrak – Chairman and CEO: I’ll let Gary comment.

Gary Ellis – SVP and CFO: Yeah. I mean, Matt, overall, as you indicated, we saw a little bit of – obviously, in ICDs we saw tempering of the kind of the decline, down a couple percent. Pacing was also kind of down at low-single-digits and so, we saw improvement there. Stents I think have been – it varies kind of around (indiscernible) they have been probably closer and more in the high-single-digits as far as some of the declines there, depending on what geography you are in. So, we continue to see pricing declines on the drug-eluting stents side that are pretty consistent with what we’ve seen over the last several quarters. But clearly, with the product launches we had both in pacing and on high-power, we are seeing a little bit of tempering on the pricing pressure.

Matthew Dodds – Citigroup: And then just one quick ICD question. When you look at the bulking, Q4 didn’t factor into Q1 is the comments from the call; you got to hit in Q1 but you expect to improve in Q2 or do you think Q4 there was some additional bulking on that quarter that impacted Q1?

Omar Ishrak – Chairman and CEO: I think largely you’re correct. I think it was mostly Q1 – isolated to Q1 itself and the dynamics are between Q1 and Q2 as opposed to Q4…

Gary Ellis – SVP and CFO: Matt, as look through – I mean we clearly thought into the quarter we know inventory levels dropped based on what we saw as far implant usage or everything else. And so we don’t believe that there was a big impact from Q4. Obviously, our Q4 was a very strong quarter as you all know but we don’t think that that had an impact in the quarter. We do believe – we that from, as we indicated in my comments that lot of these new products were not on contract yet and we weren’t willing to put discounts on the previously contracted pricing and so as a result of that we just didn’t see the level of bulk purchases during the quarter that we would normally see and we know inventory levels were down as a result of that. So that bodes well for the future. We think it bodes well not only for pricing but obviously also we would expect the bulk purchases to come back to more normal levels as we go through the rest of the year.

Inventory Levels Outlook

David Lewis – Morgan Stanley: Maybe just two quick questions Gary just in terms of the German injunction impact for CoreValve, it looked to us like about a $25 million impact. Can you kind of give us a sense of what the impact was in your mind in the quarter and how do we think about that number heading into next quarter? Should we assume a significant drop off or still inventory levels are maintaining a relatively high and then I had a quick follow-up.

Gary Ellis – SVP and CFO: We don’t know obviously exactly how much benefit we received in the quarter from the advanced purchases. We know the customers were buying in advance of the anticipated injunction. And so, as a result of that that clearly had a benefit in the quarter. We know that our results were higher than what was going on in the market during that period of time. The numbers are anywhere from (indiscernible) a little high. But overall, it would probably be somewhere in that ballpark. The reality is, we did have extra revenue during the quarter. As we go into Q2 and Q3, it will obviously depend on – as the (here again) in the quarter, we’re continuing to be selling until the injunction is in effect and we’ll continue. So, there will be some impact, obviously, in the quarter. Whenever the injunction is – when that occurs, if that occurs, then obviously, we’ll have an impact going forward and it will be spread out over that period of time until we get that resolved. But at this point in time, obviously, there was an advantage in Q1 we are aware of. So, inventory levels, obviously, are higher on that product. Currently, inventory levels on CRDM, obviously, are lower in the U.S., but certainly on CoreValve they are higher as physicians in bought in anticipation of a potential injunction…

David Lewis – Morgan Stanley: And then maybe Omar just more of kind of a strategic question. All throughout the quarter we heard the Chinese government taking greater action to look at price scrutiny in obviously the domestic market. Most of that was directed at pharmaceutical providers, but there has been some around medical device manufacturers. Historically, when we’ve seen this action by the government, we have seen an impact on growth rates in China for drugs specifically, but also some for devices. Any sense of what impact some of the government’s actions are having on your business or is there any concern that you would see an impact on your business later on in the year?

Omar Ishrak – Chairman and CEO: Look, we’re watching China closely for obvious reason. Now, the first thing that I’d like to say is that in no way does any of this activity shake our belief that it is a market we’ve got to win and we’ve got to be committed to and we’ve got to understand locally how it operates. Now, you are right that the Chinese government is looking at pricing very carefully and probably as they should, but in our view most of that is directed around the go-to-market models using distributors, which we are looking at very carefully. I mean, it’s a market where we eventually have to have more direct presence with the customers themselves. Now, the way we have traditionally gone to market, we’ve used distributors for a variety of reasons, a lot of those are extremely necessary, and so we don’t want to make any dramatic changes, but we are, as we are doing in almost every other country in the world examining our distribution models very carefully. That’s the action that we are taking and at the same time, we are working very closely with the government to help put in investments so that healthcare in China can be dramatically improved. So again, we are watching the situation closely particularly around the distribution channels, but we don’t expect at this stage any dramatic moves any time soon, and again, as we said, we’re just watching it.