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Medtronic Misses on Top Line, but Beats Profit Expectations

By Jim Crumly – Feb 18, 2020 at 2:45PM

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Management warned that the COVID-19 outbreak will affect next quarter's results, but did not speculate as to how big the impact would be.

Medical device manufacturer Medtronic (MDT -1.08%) beat profit expectations in its fiscal third quarter, but reported disappointing revenue, and shares were falling about 4% Tuesday afternoon. GAAP earnings per share grew 51% to $1.42, and a 12% increase in non-GAAP EPS to $1.44 beat the analysts' consensus of $1.38. Revenue increased 2.3% to $7.7 billion, below analysts' $7.8 billion consensus estimate.

Management said on the conference call that the company's top-line performance was below internal expectations, and although it blamed "transient" issues for the miss, it's making some changes to improve predictability. Medtronic said that customers postponed purchases ahead of new product announcements, and that an upgrade of its enterprise resource planning software resulted in a temporary inability to meet demand for surgical products from its Minimally Invasive Therapies Group.

Medtronic Operational Headquarters.

Image source: Medtronic.

The good news was that profitability improved due to efficiency gains. Operating margin expanded 0.7 percentage points (excluding currency effects) and cash flow from operations increased 17% to $2.4 billion for the Dividend Aristocrat.

Medtronic said it expects fourth-quarter EPS to land between $1.62 and $1.64, slightly below analysts' consensus forecast of $1.64. It also said that its guidance doesn't factor in any impact from COVID-19, but noted that the coronavirus outbreak has led to a decline in the number of medical device procedures being conducted in Chinese hospitals, which will have a negative effect of unknown magnitude on its Q4 results.

Jim Crumly has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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