Medtronic’s revenue increases in Q3 but shares fall after earnings release

During the third quarter of fiscal year 2016, Medtronic’s revenue increased six percent to $6.394 billion, while its diluted earnings per share decreased one percent to $0.77 per share.

In the U.S., revenue increased four percent to $3.965 billion. The U.S. accounted for 57 percent of the company’s sales for the quarter.

Medtronic announced its quarterly earnings on the morning of March 1. As of 12:35 p.m. Eastern time that afternoon, its share price was down approximately four percent to $74 per share.

Jefferies analyst Raj Denhoy told Reuters that that Medtronic’s adjusted operating margin of 27.8 percent was below expectations of 28 percent to 28.5 percent. He speculated investors are using adjusted operating margin as a metric to determine how Medtronic is integrating Covidien. Medtronic acquired Covidien in January 2015 in a cash-and-stock deal worth nearly $50 billion.

“Right or wrong, [adjusted operating margin] is the number that investors are looking at to judge the integration of Covidien, as a marker for how well the expenses are being controlled,” Denhoy said.

Revenue for the cardiac and vascular group increased seven percent during the third quarter to $2.41 billion. The group’s results included a six percent revenue increase in the cardiac rhythm and heart failure division to $1.278 billion, a seven percent revenue increase in the coronary and structural heart division to $736 million and a 10 percent revenue increase in the aortic and peripheral vascular division to $396 million.

Medtronic said the launch of the Evera MRI implantable cardioverter defibrillator (ICD) led to an increase in sales in the cardiac rhythm and heart failure division. The FDA approved the Evera MRI ICD in September for patients with sudden cardiac arrest.

Revenue increased five percent in the minimally invasive therapies group, which includes the surgical solutions and patient monitoring and recovery divisions. Most of the legacy Covidien business is now part of the minimally invasive therapies group. Revenue also increased 11 percent for the diabetes group and four percent in the restorative therapies group, which includes the spine, neuromodulation and surgical technologies divisions.

Medtronic also provided an update to its revenue and earnings guidance. For the fourth quarter of fiscal year 2016, the company expects revenue growth of 5.0 percent to 5.5 percent on a constant currency basis. For fiscal year 2016, it expects diluted non-GAAP earnings per share of $4.36 to $4.40 per share.