Medtronic stock dropped Tuesday after the medical devices company beat Wall Street's expectations, but its raised earnings outlook disappointed.
For the year, Medtronic now expects adjusted earnings of $5.60 to $5.66 per share. At the midpoint, that's up 8 cents from the guidance issued three months ago. The company also reiterated its outlook for 5% organic sales growth. Though the earnings guidance topped forecasts, it wasn't enough.
"Medtronic raised its adj. EPS guidance due to (foreign exchange rates) and a lower tariff burden," Raymond James analyst Jayson Bedford said in a report to clients. "But given these factors, we would have thought the EPS guidance would have been higher."
In response, Medtronic stock fell 3.1%, closing at 89.90. Shares briefly fell below a buy zone after topping a buy point at 89.17 out of a cup-with-handle base last month, according to MarketSurge.
Elliott Takes A Stake In Medtronic Stock
There were a lot of moving parts in Medtronic's announcements early Tuesday. The company laid out a series of leadership and strategic changes after activist investor Elliott Management became one of the company's biggest investors.
Medtronic appointed John Groetelaars and Bill Jellison to the board of directors and announced new growth and operating committees following "constructive engagement" with Elliott Management.
Groetelaars has more than three decades in the medical devices market. Most recently, he served as a director at Dentsply Sirona. Jellison was the chief financial officer at Stryker from 2013 to 2016.
Elliott Partner Marc Steinberg says Medtronic is "entering a new chapter of exceptional value creation defined by accelerating growth, operational improvement and enhanced strategic clarity."
"We believe Medtronic's recent innovations in some of the medical technology sector's most attractive markets have positioned the company for an inflection in organic growth," he said in a statement. "Combined with its renewed focus on portfolio simplification and improved operational execution, Medtronic is set to deliver a sustainable acceleration in earnings growth as well."
Results Miss 'Elevated Expectations'
On the topline, sales of all products rose 8.4% to $8.58 billion, beating projections for $8.38 billion, according to FactSet. Medtronic also earned an adjusted $1.26 per share, up 2% and ahead of forecasts by 3 cents.
The highlight was nearly 50% growth from the cardiac ablation solutions portfolio. In the U.S., CAS sales grew 72%. This segment includes pulsed field ablation, or PFA, a method of treating atrial fibrillation and other heart rhythm disorders. Boston Scientific also has a PFA platform.
But beyond that, Raymond James' Bedford said the results fell short of his "elevated expectations," and Bloomberg Intelligence analyst Matt Henriksson called the results "more solid than stellar."
The results "built on momentum in pulsed field ablation (and) set a strong foundation for the full year despite its maintained organic sales outlook," Henriksson said in a client note.
Total U.S. revenue grew just 3.5% year over year, missing expectations by 1%, Leerink Partners analyst Mike Kratky said in a report. Outside the U.S., sales grew 13.6%, beating forecasts by 6%.
Worldwide sales in the cardiovascular, medical-surgical and diabetes segments topped projections, while neuroscience sales were in line.
Kratky kept his outperform rating on Medtronic stock.
Follow Allison Gatlin on X/Twitter at @AGatlin_IBD.
