Dividend Growth Newsletter holding Medtronic (click ticker for report: ) announced solid third quarter results Tuesday morning. Revenue grew 3% (4% excluding currency) year-over-year to $4 billion, roughly in line with consensus estimates. Earnings exceeded consensus expectations by a few cents, growing 11% year-over-year to $0.93 per share on an adjusted basis.
International revenue growth outpaced that of the US, growing 5% (7% excluding currency) to $1.9 billion, driven by 20% growth in emerging markets (which now accounts for 12% of revenue). We’re huge fans of this long-term trend, and we believe that growing wealth in emerging markets will provide a powerful tailwind to the core business for years to come. US revenue was roughly flat, but we (once again) saw great strength from the company’s drug-eluting stent business, which drove 16% revenue growth in Medtronic’s US coronary business. Globally, drug-eluting stent sales surged 42%, propelling reported coronary revenue growth to 16% (19% excluding currency).
The firm’s Cardiac and Vascular Group remains Medtronic’s top performer, with the entire segment growing 3% (5% excluding currency) to $2.1 billion. We already mentioned the fantastic performance from drug-eluting stents, and revenue in its Endovascular business jumped 12% (14% excluding currency) to $212 million. Thoracic stent grafts were the standout performer, though management acknowledged strong performance from the entire stent portfolio.
In spite of spinal weakness, the Restorative Therapies Group posted 2% revenue growth, leading to a total of $1.9 billion for the group. Spinal revenue declined 4% driven mostly by weakness in the US market, though the firm noted the US Core Spine business is stabilizing. Surgical Technologies jumped 10% year-over-year to $350 million, as Medtronic capitalizes on the increasing comfort by medical professionals of using new, innovative technology. We’ve witnessed even better strength in the sector from Intuitive Surgical (click ticker for report: ), which we hold in the portfolio of our Best Ideas Newsletter. We’re expecting strong results from this segment going forward.
Looking ahead, Medtronic reaffirmed its full-year guidance of revenue growth of 3%-4% (excluding currency) and earnings per share of $3.66-$3.70—both figures in line with consensus estimates. Although we’d like to see higher earnings growth than 6-7%, we’re fairly pleased with Medtronic and its prospects of raising its dividend in the future. The firm has generated nearly $3.4 billion in free cash flow year-to-date (an impressive 28% of sales), leaving it with tremendous financial flexibility to increase returns to shareholders or acquire new companies. We’re holding steady with our position in the portfolio of our Dividend Growth Newsletter.
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