Medtronic tells investors it expects faster sales growth ahead

Medtronic CEO Geoff Martha says the medical device company can grow revenue by at least 5% a year, just by keeping pace with the expansion in the hundreds of product markets it sells into.

That would be an improvement over recent performance, in which the $29 billion-revenue company run from Minnesota targeted 4% growth — and didn't always hit it.

"If you go to the last quarter before the pandemic, we grew at 3.5%, not 5-plus," Martha said Wednesday at a virtual investor conference.

"If we can just grow at the market," he said, "we would be at that 5%. But we haven't been there. So we've got to make progress from where we've been. And we are making that progress."

Martha, who became CEO of Medtronic less than six months ago, told stock analysts at the company's investor event that he's crafting plans and meeting with executives to find ways to make the 71-year-old company more nimble and aggressive.

One key result is the release of a plan to streamline decisionmaking and give more authority to individual business units, which will create at least $450 million in annual savings by the next fiscal year, which starts in April 2022.

That plan comes on top of an ongoing program launched in 2018 that is on track to create more than $3 billion in savings and financial leverage.

Those efforts together give Chief Financial Officer Karen Parkhill confidence to project more than 8% growth in adjusted earnings per share over the long term.

Medtronic shares closed at $107.56 Wednesday, up 0.6% for the day. Year to date, shares are off 5.2%, a period when the S&P 500 stock index has gained nearly 8%.

Vijay Kumar, an analyst with ISI Evercore who has a $118 target price for Medtronic stock, said executives did a convincing job of showing the company has a plan to speed up its growth by increasing its market share in many product segments.

"The thing that stood out for us was the confidence that [Medtronic] exhibited [was not shy of doing head to head comparison vs competition] in its ability to gain share going forward," Kumar wrote in a note to investors.

Medtronic spotlighted several clinical trials that will measure the performance of its devices vs. market competitors' devices.

In med-tech, clinical trials typically use the company's own past products or a statistical benchmark as a comparator.

Trials highlighted by Kumar included head-to-head comparisons with other companies' minimally invasive aortic "TAVR" heart valves and subcutaneous implantable defibrillators, as well as heart monitors, neurostimulators for bladder incontinence, and drug-coated balloons.

"Bold move and reinforces the share gain message," Kumar wrote.

Medtronic has published no formal guidance on what investors can expect in the next six months, but executives have been projecting confidence that the medical device maker is ready to capitalize in a down market.

Martha said health care markets in the U.S. and Europe have been recovering from the COVID-related slowdowns faster than expected, potentially allowing Medtronic to return to a normal level of revenue and profit growth by January, Martha said. That's an upgraded outlook since August.

"We … told investors on our earnings call in August that we would be back to our normal level of growth, that single-digit revenue growth, and our normal level of profitability, by the end of our fiscal year in April 2021. But things are moving faster and improving even better than what we thought," Martha said in an interview with the Star Tribune ahead of the presentation.

Wednesday's biennial presentation of upcoming products and market strategies for investors was originally scheduled for June but was postponed because of the pandemic. At the virtual presentation, executives talked about the pipeline of upcoming products.

The most-discussed products included a robotic system for soft-tissue surgery, which will compete with the well-known da Vinci surgical system. Medtronic also hopes to create a new global market for a high blood reduction procedure called "renal denervation," using experimental technology originally acquired from a company called Ardian it bought a decade ago.

And Medtronic is testing a defibrillator it calls an "EV-ICD" that can pace and defibrillate the heart without wires touching it or going inside blood vessels. All of those devices are expected to be launched in the next 24 months.

"We are a mission-driven company … but we do need to augment that with I think … an increased competitive spirit, a grittiness," Martha said at the event.

"As we open these new markets, like we're going to do with Ardian, and EV-ICD, or disrupt markets, too often competitors come in right behind us in my humble opinion, take too much of the financial returns that I think should go to Medtronic and our shareholders."

Joe Carlson • 612-673-4779