Medtronic expects inflation to weigh on 2024 earnings

Medtronic expects inflation to weigh on 2024 earnings

By Mariam Esunny and Leroy Leo

Feb 21 (Reuters) – Medtronic Plc (MDT.N) said on Tuesday it expects inflation in various markets to hit its profit in the next fiscal year after the medical device maker beat earnings estimate for the third quarter on strong demand for its heart and diabetes devices.

While inflation in many countries has eased in recent months, the management expects a delayed improvement in its earnings as its costs remain high.

Shares of Medtronic were marginally down in choppy trade as the company also expects 80% of its portfolio to come under the Chinese government’s volume-based procurement (VBP) by the end of fiscal 2024, under which the country will buy medical devices in bulk at a sharp discount.

About half of its portfolio has already been impacted by bulk buying at sharp discounts in China, executives said on a conference call with analysts.

“VBP has affected us more than many of our competitors, given the size and breadth of our business in China. However, we do expect that we are now through the majority of the impact,” Chief Financial Officer Karen Parkhill said.

Growth in cardiovascular, neuroscience and diabetes devices helped soften a blow to sales in China in the third quarter from a resurgence in COVID-19 cases, which have hit rivals such as Abbott Laboratories (ABT.N) and Johnson & Johnson (JNJ.N).

Sales at Medtronic’s heart devices unit, its biggest revenue driver, were $2.77 billion, above analysts’ estimates of $2.71 billion, according to Refinitiv IBES data.

Excluding items, the Dublin-based company reported a profit of $1.30 per share, above the average analyst estimate of $1.27 per share.

Following the beat, the company, whose financial year ends in April, also raised the low end of its 2023 profit outlook to $5.28 per share, from $5.25 it forecast in November. The top end of its forecast remains at $5.30.

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Source: Reuters