Medtronic plc — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2022, ended October 29, 2021. Comparisons are with the corresponding periods ended October 30, 2020. Amounts are in U.S. dollars.
Financial performance
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Net sales | $7.847bn | $7.647bn | $15.835bn | $14.154bn |
| Operating profit | $1.563bn | $930m | $2.422bn | $1.603bn |
| Net income attributable to Medtronic | $1.311bn | $489m | $2.074bn | $976m |
| Diluted EPS | $0.97 | $0.36 | $1.53 | $0.72 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $3.061bn | $2.139bn |
| Free cash flow | Not provided for quarter | Not provided for quarter | $2.412bn | $1.524bn |
Q2 sales increased 3%; six-month sales rose 12%. Calculated GAAP operating margin was approximately 19.9% for Q2 versus 12.2%, and 15.3% for the six-month period versus 11.3%. The six-month results include a $726m charge relating to the decision to stop selling the HVAD System. The prior-year comparison also includes a $308m debt-extinguishment charge, contributing to the increase in current-period earnings and lower interest expense.
Six-month sales increased across Cardiovascular (11%), Medical Surgical (13%), and Neuroscience (15%); Diabetes increased 2%. In Q2, emerging-market sales grew 20%, while U.S. sales declined 1%. Management attributed U.S. weakness chiefly to COVID-19 resurgence and healthcare staffing shortages; international recovery supported growth.
Cash, debt, and liquidity
- At October 29, 2021, cash and equivalents were $2.9bn and current investments were $7.8bn, totaling $10.7bn of reported cash and current investments.
- Total debt was $25.6bn, down from $26.4bn at April 30, 2021, primarily due to currency movements on euro-denominated notes. Current debt was $16m; long-term debt was $25.6bn.
- Current assets were $22.7bn and current liabilities $7.8bn. No commercial paper or revolving credit facility borrowings were outstanding. The company reported compliance with credit-facility covenants.
- For the first six months, operating cash flow was $3.061bn and capital expenditures were $649m. Cash declined $693m to $2.9bn; financing cash use was $2.210bn, including $1.693bn of dividends and $744m of share repurchases.
Material developments, outlook, and risks
- HVAD System: Medtronic stopped distribution and sales in June 2021 after clinical comparisons indicated another available device had lower observed rates of neurological adverse events and mortality. The company recorded $726m in charges, including $515m of non-cash impairments and write-downs; it remains committed to supporting approximately 4,000 implanted patients.
- COVID-19 and procedures: Management cited uneven procedure recovery, the Delta resurgence, and healthcare staffing constraints. Future procedure volumes remain uncertain and may be affected by new variants, including Omicron, vaccination rates, and local case levels. Supply constraints are also a risk.
- Restructuring: Estimated total charges are $1.6bn–$1.8bn for Enterprise Excellence and $400m–$450m for Simplification; the majority of remaining estimated charges were expected by the end of fiscal 2022.
- Acquisition: Medtronic agreed to acquire Intersect ENT for approximately $1.1bn in cash, subject to antitrust clearance and other closing conditions; closing was expected toward fiscal year-end.
- Other risks and contingencies: Competition, pricing and reimbursement pressure, supply interruptions, regulatory approvals, product quality, foreign exchange, litigation, and tax disputes could affect results. Accrued litigation was approximately $0.3bn; the ultimate cost may differ materially. A long-running IRS dispute over income allocation to Puerto Rico was awaiting a Tax Court decision, subject to appeal.
- Management described the balance sheet and liquidity as strong enough to meet foreseeable operating needs. The filing gives no specific consolidated revenue or EPS guidance.
Most important facts for investors to verify
- Whether procedure volumes, staffing availability, and supply constraints recover as expected, particularly in the U.S.
- The operational and financial effects of the HVAD exit, including ongoing patient-support obligations.
- Whether reported earnings and cash flow remain strong after adjusting for the HVAD charge and prior-year debt-extinguishment charge.
- Progress and final costs for both restructuring programs, and the timing and completion conditions for the Intersect ENT acquisition.
- Developments in significant litigation and tax matters, including the Puerto Rico income-allocation dispute.