MINNEAPOLIS _ Medtronic shares dropped sharply early Tuesday as the medical technology maker announced lower-than-expected sales and a slightly lowered financial outlook for the remainder of the fiscal year.
For the three months that ended Oct. 28, the Minnesota-run company reported sales of $7.35 billion, which represented growth of just 3 percent compared to the same quarter last year. Revenue growth was about half of what stock analysts had been expecting.
"We're not happy about the revenue performance this quarter," Medtronic chief executive Omar Ishrak said in a conference call with investors Tuesday. "We do think the reasons for the shortfall are identifiable and in most cases temporary. We expect our new product introductions, primarily, to drive a recovery in the back half of the year."
Medtronic shares were trading at $73.91 Tuesday morning, down more than 8 percent from the closing price the day before.
The company saw slower-than-expected sales growth in insulin pumps, transcatheter aortic replacement valves and drug-eluting stents during the quarter, which contributed to the lower revenue results.
In the diabetes division, the quicker-than-expected Food and Drug Administration approval of the next-generation 670G insulin pump actually had a negative impact on revenue growth. That was because the next-most-recent pump on the U.S. market, the 630G, was approved just two months earlier than the 670G.
"The earlier-than-expected approval has created a bigger-than-expected gap between product approval and shipment," Ishrak said. He noted that the full launch of the 670G is expected next spring, and that the company has launched a program for early-adopting patients who want to use the 630G now and then get priority access to the 670G when it's launched.
U.S. revenue in the diabetes group dropped by 3 percent, to $272 million, in the just-ended quarter. The currency-adjusted growth in emerging and developed markets outside the U.S. didn't make up for the U.S. shortfall. Ishrak said diabetes sales will return to double-digit growth after the launch of the 670G next year.
In the coronary and structural heart group, where U.S. sales fell 11 percent to $289 million in the quarter, Medtronic only recently got FDA permission to sell a sought-after larger size of its transcatheter aortic valve, the Evolut R. Medtronic is also projecting U.S. sales of its new Resolute Onyx drug-eluting stent by next spring, to compete with recent next-generation drug-eluting stents from other companies.
Overall, the company reported $1.56 billion in adjusted net income on sales of its pacemakers, vascular stents and surgical supplies, which was growth of 6 percent. Adjusted diluted earnings per share came in at $1.12, which was one cent above the Street's forecast.
Yet by the end of Tuesday's question-and-answer session with analysts, Ishrak was defending the company and reinforcing executives' confidence in Medtronic's long-term performance. Tuesday's results were the product of several temporary trends hitting the company's growth drivers at the time, he said.
"We remain confident in our overall strategy that we laid out in our analyst meeting (in June) _ mid-single-digit revenue growth, and double digit EPS growth, on a constant currency basis, not only this fiscal year, but sustaining into the future. And that is something we are certainly not coming off," he said.
Previously, Medtronic had announced an outlook of 5 to 6 percent revenue growth for the fiscal year. Non-GAAP EPS is now projected in a range of $4.55 to $4.60 per share, compared to previous guidance of $4.60 to $4.70 per share.
