Medtronic's Earnings: 3 Things You Need to Know

Earnings season's come and gone, but before we put this quarter behind us, medical device giant Medtronic (NYSE: MDT  ) capped off a quarter of surprises, beats, and misses with its own fiscal fourth quarter results. Medtronic's a household name in health care: It's the market's largest pure medical device maker, and between a steady dividend and consistent cash flow, this stock's long appealed to long-term investors.

Despite a big one-time earnings hit, Medtronic didn't disappoint with its earnings this quarter. The company boosted its revenue by more than 2% year-over-year and pushed its adjusted per-share profit higher as well. But what do you really need to know about Medtronic's earnings and where this stock could go in the future? Let's check in on the top three headlines from this solid med tech company's latest report.

Putting to rest old feuds
The biggest blow to Medtronic's earnings came from a surprising one-time result with huge implications. The company settled with long-time heart valve rival Edwards Lifesciences (NYSE: EW  ) over a dispute regarding patent infringement. Medtronic agreed to pay $750 million upfront to settle the spat, along with adding in royalties through 2022. It's a good deal for Edwards, which has struggled to hold off Medtronic and its CoreValve and defend its first-mover advantage in the U.S. for its competing Sapien heart valve, which has left investors with mixed feelings recently. However, the deal could be an even bigger victory for Medtronic in the long run, despite the significant blow to the firm's earnings in the prior quarter.

Edwards has recently been repeatedly challenging Medtronic in the courts. The firm at one point last year even gained an injunction against Medtronic's CoreValve for sale in Germany, a decision later overruled -- but one that bought time for Edwards and the Sapien to gain ground. Now with its biggest legal obstacle in the rearview mirror, Medtronic has permission to push the CoreValve fully in an attempt to capture a major slice of what could be a market worth more than $2 billion every year, according to the firm.

Medtronic still has work to do to have its CoreValve catch up with Edwards's Sapien in this heart valve niche, but the settlement news is a great step toward solidifying the future.

Growth elusive in cardiac devices

Medtronic's Evera ICD. Source: Medtronic Image Gallery

The cardiac device market's been struggling, and Medtronic's been no stranger to this recent phenomenon. The company again saw its core cardiology businesses fail to generate much momentum this quarter, with pacemaker sales flat year-over-year and revenue from implantable cardioverter defibrillators, or ICDs, down 2% at a constant currency. That's in line with the other major earnings releases from the device industry over the past month: Major cardiac rival Boston Scientific (NYSE: BSX  ) , which likewise has struggled to manage growth in this area, saw both its pacemaker and defibrillator revenues decline at a constant currency in its most recent earnings report.

But like Boston Scientific, Medtronic's pushing hard into new cardiac device niches in order to unlock growth and impress investors. Atrial fibrillation, a type of heart rhythm defect, has been a big hit among device makers recently, and Medtronic's gone all-in on this rising industry. The company's atrial fibrillation revenue jumped 20% at a constant currency in the most recent quarter, and while it's still small, this business could be a big winner for Medtronic in the long run.

Transparency Market Research estimates that the atrial fibrillation market will swell to $14.8 billion by 2019, more than doubling its 2012 overall value. Rivals like St. Jude Medical (NYSE: STJ  ) have been quick to enter this area as well: St. Jude managed 8% sales growth in its own atrial fibrillation business in its most recent quarter. Medtronic will need to work to stave off cardiac rivals like Boston Scientific and St. Jude, but this is one industry that should only keep benefiting this company over the coming years.

Honing in on international gains
Gains in new areas such as atrial fibrillation are great for Medtronic's long term, but the company's keyed in on geographic growth, as well – and it delivered for investors in the fiscal fourth quarter. Medtronic managed 3% year-over-year international sales growth in the quarter, and the company's now earnings 47% of its total sales from overseas.

The company's biggest push, however, has been in emerging markets. Company CEO Omar Ishrak has spoken in the past of his desire to pull in 20% of sales from emerging markets, and the company's well on its way to meeting that goal: In the most recent quarter, Medtronic earned 13% of its total sales from these economies at a 10% growth rate. While emerging markets have been up-and-down in the health care sector lately -- China's ongoing crackdown after the country's big pharma bribery scandals of last year comes to mind -- these markets are still amazing growth opportunities. China, India, and Brazil are all poised to ride waves of emerging middle classes higher, and if Medtronic can cement its place as a med tech leader in these nations now, it'll be poised to deliver top results from around the world for years to come.

Can Medtronic keep it up?
Despite the one-time profit hit from Medtronic's settlement, this quarter was a well-rounded success for investors -- even as this stock sank by more than 1.5% on Tuesday. Medtronic's shares have been sluggish over the past six months, gaining only around 4% over that time. However, this company's positioned well for success over the long run. From exciting new growth opportunities in its core cardiac device space to its international growth prospects, Medtronic's making the right moves now to pay off investors for a long time to come.

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