Medtronic stock skidded Tuesday after the medtech giant missed Wall Street's January-quarter sales expectations, though profit came in ahead of forecasts.
The company blamed a change in U.S. distributor buying patterns for surgical instruments. Medical surgical sales declined by 0.4% organically and lagged projections by about 2.6%, Evercore ISI analyst Vijay Kumar said in a report. Medtronic noted this was due to inventory destocking and not share loss as end U.S. hospital customer purchasing patterns remained stable.
Jeff Jonas, portfolio manager at Gabelli Funds, was surprised at the magnitude of Medtronic's stock drop. Shares fell 7.3%, closing at 86.07.
"I don't see the inventory issue as a big deal," he said in an email to Investor's Business Daily. "Yes, they should have managed it better to not let it happen, but again they're offsetting that in the current fiscal quarter (Q4 ending April) and it won't recur next year. I think some of this is some Covid safety stock being worked down now that we're completely beyond it."
Medtronic Stock Falls On Revenue Miss
Across all products, sales rose 2.5% on a strict, as-reported basis and 4.1% organically to $8.29 billion. Organic growth lagged Medtronic's forecast for 4.75%, Kumar said. Revenue missed the $8.33 billion estimate of analysts polled by FactSet.
Cardiovascular sales climbed 5% organically, in line with expectations, while neuroscience sales rose 5.2%, driven by a high-teens percentage growth in U.S. neuromodulation. Neuromodulation uses electrical signals to mask pain. Medtronic points to the strong launch of its spinal cord stimulator, Inceptiv. Brain modulation grew by a mid-20% range in the U.S.
Sales of diabetes devices surged 10.4% organically, beating expectations. This was the fifth straight quarter of double-digit growth, Kumar said. Medtronic sells insulin pumps and continuous glucose monitors, or CGMs.
"Interesting, MDT noted that it was investing heavily in its pipeline, including next gen patch pump and durable pumps," Kumar said.
He kept his outperform rating and 104 price target on Medtronic stock.
Company Reiterates Its Outlook
Similarly, Edward Jones analyst John Boylan pointed to Medtronic's pipeline.
"Our long-term thesis is unchanged as we continue to believe Medtronic has better new products and pipeline than it gets credit for," he said in a client note. "Overall, we believe Medtronic has a solid lineup of new products that include diabetes products, an ongoing launch of a surgical robot outside the U.S., heart products and other new devices."
Notably, Medtronic has finished enrolling patients in a U.S. study of its surgical robot, Hugo. The company is studying Hugo in patients who need hernia surgeries and benign hysterectomies. Medtronic expects to ask the Food and Drug Administration to approve Hugo for urological uses in the first quarter.
Promisingly, Medtronic earned an adjusted $1.39 per share for the fiscal third quarter, above calls for $1.36 and the company's own outlook for $1.35 to $1.37. Earnings jumped 7% year over year.
The company also reiterated its full-year guidance for 4.75% to 5% organic sales growth. The company also forecasts adjusted earnings of $5.44 to $5.50 per share. That includes a 5% impact from foreign exchange rates.
Medtronic stock broke out of a cup base with a buy point at 92.68 on Jan. 28. Shares immediately fell below their entry buy closed back in the buy zone on Friday, according to MarketSurge.
The premarket move Tuesday puts shares on deck to open below their buy point. But it's not enough to trigger a sell rule. Savvy investors are encouraged to cut their losses when a stock falls 7% to 8% below its entry.
Follow Allison Gatlin on X/Twitter at @AGatlin_IBD.
