A weak beat from heart sales
Despite the CoreValve’s success, however, Medtronic’s cardiac device sales haven’t quite hit the mark recently.
Heart devices across the industry have had a rough go over the past few years, so Medtronic’s flat sales from its Cardiac Rhythm Device Management division weren’t all that surprising. Unfortunately, Medtronic hasn’t figured out how to boost its defibrillator revenue just yet, as implantable cardioverter defibrillators, or ICDs, lost 2% in revenue.
It’s a problem endemic to Medtronic’s rivals. Cardiac competitor Boston Scientific Corporation (NYSE:BSX) posted a better-than-expected quarter recently, but its own ICD revenue fell by nearly 4% year-over-year. Unfortunately for both Medtronic and Boston Scientific Corporation (NYSE:BSX), ICDs make up a significant chunk of sales. ICDs comprised more than 16% of the former’s total sales in this quarter alone.
Medtronic’s other divisions have held up this struggling segment, but if Medtronic can’t turn these modest sales declines into the black, defibrillators will continue to hold back the company’s cardiac revenue in the future.
Counting on international strength
Fortunately, Medtronic has found one key solution to avoiding the U.S. device market’s slowdown: international sales.
International revenue jumped 6% year-over-year for the quarter, good enough to make up a full 46% of Medtronic’s total sales. Emerging markets particularly hit the gas, jumping a whopping 15% year-over-year. In a time when U.S. and European sales are falling flat, it’s of the utmost importance that Medtronic keeps its foot firmly on the pedal in high-growth regions.
It’s a strategy that could pay off in a big way across the medical device industry for years to come. China has already emerged as a force in the health care world, but with concerns about the country implementing price controls, other markets, such as Latin American giant Brazil and massive India, have become equally important to device companies looking for geographical growth.
It has certainly worked for Medtronic competitor Smith & Nephew plc (ADR) (NYSE:SNN) so far, which reaped 11% emerging market and international sales growth last year — not bad for a division that made up 12% of total revenue. If Medtronic can keep up double-digit sales growth in emerging markets like Smith & Nephew plc (ADR) (NYSE:SNN) did in 2012, it’ll be poised to cement its dominant status in the device industry across the globe.
Can Medtronic stay on top?
Investors may have dumped Medtronic’s stock following its report, but the quarter’s nothing to panic over — and certainly not something to radically alter your investing thesis on. While Medtronic’s cardiac sales, and defibrillators in particular, remain under pressure, the company’s succeeding in areas that will go a long way to cementing a solid future.
The quarter didn’t offer a home run, but for long-term investors, Medtronic’s still as good as it gets in the device industry.
The article 3 Need-to-Know Takeaways From Medtronic’s Earnings originally appeared on Fool.com is written by Dan Carroll.
Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool owns shares of Medtronic.
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