01—Abstract
Summary
Summary of the 8-K filed November 19, 2024. Cited figures are marked; the original filing is the authoritative source.
Medtronic plc (NYSE: MDT) reported second quarter fiscal 2025 results for the quarter ended October 25, 2024, with revenue of $8.403 billiona, up 5.3% as reported and 5.0% organic.
Growth was broad-based across the Cardiovascular portfolio (+6.1%b reported, +5.6% organic), led by Structural Heart & Aortic (high-single digit growth, supported by the U.S. launch of the Evolut FX+ TAVR system) and Cardiac Rhythm & Heart Failure (mid-single digit, with high-teens growth in Micra). Neuroscience grew 7.1% reported, with Neuromodulation up low-double digits and Diabetes up 12.4% reported and 11.0% organic. Medical Surgical was the weakest segment at +1.2% reported and +0.7% organic, with Surgical & Endoscopy flat organically.
Cardiac Ablation Solutions was flat, as PulseSelect PFA growth offset cryoablation declines. Profitability is more mixed. GAAP diluted EPS rose 46% to $0.99c, but this was flattered by lower income tax expense (effective tax rate of 18.0% versus 30.6% a year earlier, which included a prior-year tax charge).
Non-GAAP diluted EPS was $1.26d, up 1% as reported and 8% on a constant currency basis, with an approximately 9-cent currency headwind. Non-GAAP operating margin was 24.3%, versus 25.2% a year earlier. Management raised FY25 organic revenue growth guidance to 4.75%-5.0% (from 4.5%-5.0%) and non-GAAP EPS guidance to $5.44-$5.50 (from $5.42-$5.50), while noting an estimated 5% foreign currency headwind to EPS.
Management expects high-single digit adjusted EPS growth in the second half of the fiscal year as currency effects abate. For investors, the key points are continued innovation-led growth in cardiovascular and neuromodulation, a narrowing EPS guidance range with a modest raise at the low end, and reliance on second-half margin recovery. Reported revenue including Other revenue and currency is guided at only 3.4%-3.9%, and the quarter included a $90 million Italian payback accrual in year-to-date results.
Medtronic also disclosed a large share repurchase in the first half ($2.78 billion) and $3.2 billion of new long-term debt issuance. Gary Corona is serving as interim CFO.
02—Key points
Key Highlights
- Q2 FY25 revenue of $8.403B, up 5.3% reported and 5.0% organic, with growth across Cardiovascular (+6.1%), Neuroscience (+7.1%), and Diabetes (+12.4%)
- GAAP diluted EPS of $0.99 (up 46%) versus non-GAAP diluted EPS of $1.26 (up 1% reported, 8% constant currency); GAAP EPS benefited from a lower effective tax rate (18.0% vs. 30.6%)
- FY25 organic revenue growth guidance raised to 4.75%-5.0% from 4.5%-5.0%; non-GAAP EPS guidance narrowed to $5.44-$5.50 from $5.42-$5.50
- Reported-basis revenue growth guidance of 3.4%-3.9% reflects Other revenue and foreign currency; FX is an estimated ~5% headwind to EPS
- Medical Surgical was the weakest segment at +1.2% reported (+0.7% organic), with Surgical & Endoscopy flat organically and Cardiac Ablation Solutions flat
- Innovation drivers include Evolut FX+ TAVR U.S. launch, PulseSelect and Affera PFA ramp, Micra, Percept RC DBS, and MiniMed 780G
- Balance sheet activity: $2.78B of share repurchases and $3.2B of new long-term debt issued in the first half; cash flow from operations of $1.94B and free cash flow of $1.02B for six months
03—Questions
Frequently Asked Questions
Why did GAAP EPS rise 46% while non-GAAP EPS rose only 1%?
The GAAP increase is largely driven by a much lower effective tax rate (18.0% in Q2 FY25 versus 30.6% in Q2 FY24). The prior-year period included a tax adjustment of $176 million, or $0.13 per share, which was excluded from non-GAAP results. Non-GAAP EPS, which excludes items such as amortization and restructuring, rose 1% as reported due to an approximately 9-cent currency headwind and lower non-GAAP operating margin (24.3% versus 25.2%), and grew 8% on a constant currency basis.
Is Medtronic's FY25 EPS guidance improving?
Modestly. The company raised the low end of its non-GAAP diluted EPS range to $5.44-$5.50 from $5.42-$5.50, implying 4.6%-5.8% growth. The guidance continues to include an estimated 5% foreign currency headwind, which management expects to abate in the second half, when it anticipates high-single digit adjusted EPS growth.
Which business segments are driving growth, and which are lagging?
Structural Heart & Aortic (+7.6% reported) and Neuromodulation (+12.6% reported) led the growth, along with Diabetes (+12.4% reported). Cardiac Rhythm & Heart Failure grew 5.8% and Specialty Therapies 4.6%. Medical Surgical lagged at +1.2% reported and +0.7% organic, with Surgical & Endoscopy flat organically, and Cardiac Ablation Solutions was flat as cryoablation declines offset PulseSelect growth.
What should investors note about the Italian payback accrual and capital allocation?
The company recorded $90 million of incremental Italian payback accruals from July 2024 Constitutional Court rulings, which was excluded from non-GAAP results but reduced year-to-date reported revenue and GAAP earnings. On capital allocation, Medtronic repurchased $2.78 billion of ordinary shares in the first six months (versus $378 million a year earlier) and issued $3.2 billion of long-term debt, while paying $1.8 billion in dividends. Current debt obligations rose to $3.7 billion, so investors may want to monitor leverage and the pace of buybacks.
What are the near-term catalysts and reporting dates?
Key near-term catalysts include continued U.S. and European launches of the Evolut FX+ TAVR system, the PFA ramp of Affera and Sphere-9, Medicare transitional pass-through payment for Symplicity Spyral beginning January 1, 2025, and the FY25 pipeline in high-impact markets. Medtronic plans to report third-quarter results on February 18, 2025 and fourth-quarter results on May 21, 2025.
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