Diabetes and Neuro Products Ignite Medtronic’s Q1 Earnings Rally

Key Points

• In mid-August, Medtronic reported better-than-expected results for the first quarter of its fiscal year 2025, driven by double-digit growth in its diabetes and neuromodulation business lines.
• The medical device manufacturer is a leader in continuous glucose monitors and automated insulin delivery systems. Its various products are either slated for launch or pending FDA approval.
• The rise in acute care needs from an aging population could benefit Medtronic over the longer term.

Shares of medical device manufacturer Medtronic PLC NYSE: MDT are down about 35% from their highs of roughly three years ago, but promising results from the company's first quarter of fiscal 2025, which ended July 26, could help to drive renewed upward momentum. Specifically, Medtronic's diabetes and neuromodulation products may be poised for breakout growth, and the company's up-and-coming products in various stages of development offer promise as well.

Medtronic Beats Expectations with Strong Q1 Revenue and EPS Growth

Revenue of $7.9 billion for the quarter was up 2.8% as reported and 5.3% organically, ahead of analyst expectations and representing a seventh consecutive quarter of mid-single-digit growth. Non-GAAP diluted EPS of $1.23 was 3 cents above consensus estimates. Top- and bottom-line improvement hinged on strong performance across multiple categories.

Medtronic expects this outperformance to continue as the firm raised the bottom end of its full-year FY2025 guidance for revenue and EPS. Organic revenue growth is now forecast at 4.5% to 5%; prior to this report, it was 4% to 5%. Medtronic now expects non-GAAP EPS to be in the range of $5.42 to $5.50, while before, it was $5.40 to $5.50.

This is a modest but important change to guidance, as the company lifted the bottom end of guidance in both cases despite anticipating a negative impact from foreign currency exchange. The updated guidance reflects Medtronic's optimism about its new product launches and continued adoption of popular existing medical devices.

Medtronic's adjusted gross margin was a solid 65.9% for the quarter, down 50 basis points year-over-year but ahead of expectations. As in the guidance case, currency negatively impacted this figure, although pricing helped drive a gross margin improvement of 30 basis points on a constant currency basis.

Medtronic’s Neuroscience and Diabetes Segments See Impressive Growth

A highlight of Medtronic's fiscal first-quarter performance was the firm's diabetes category, led by its MiniMed 780G automated insulin delivery (AID) system. This business line experienced 12.6% organic revenue growth to $647 million during the quarter.

Following the end of Q1, Medtronic has more recently announced two other updates to its diabetes business that signal the potential for continued growth. First, the company received FDA approval for its Simplera continuous glucose monitor (CGM) system. Medtronic has already experienced success with the full market release of its related Simplera Sync sensor internationally, boding well for the U.S. launch of this new CGM. Medtronic will likely pursue approval of its InPen smart insulin pen system as well, potentially allowing for full integration into a single, easy-to-use system for diabetes patients.

Additionally, Medtronic announced a partnership with Abbott Laboratories NYSE: ABT to develop an integrated CGM. The company expects this will increase its installed base and further boost diabetes business revenue.

Neuromodulation, part of Medtronic's neuroscience portfolio, also drove its first-quarter results. The portfolio's revenue grew organically by 5.3% to $2.3 billion. Neuromodulation, in particular, grew by 10%, surpassing the market. The brain modulation business, driven by the launch of the neurostimulation machine Percept RC for use with patients experiencing neurological disorders like Parkinson's, grew by an impressive 14%.

MDT's New Product Pipeline Offers Potential

Besides the success of the product launches above, Medtronic offers a deep and varied pipeline of other medical devices at various stages of development. An especially important one to watch is the Sphere9 catheter for use in atrial fibrillation treatment.

Medtronic already maintains a solid position in this space thanks to its PulseSelect catheter line. Since launch, PulseSelect catheters have treated more than 10,000 patients and accelerated Medtronic's cardiac ablation solutions growth to 6% year-over-year. The company expects PulseSelect to continue to drive further improvement in the current quarter and beyond.

The Sphere9 product, which is being launched in limited quantities in Europe and is pending FDA approval in the U.S., could help Medtronic capture an even larger portion of the $9-billion cardiac ablation market.

Increases in Acute Care Needs Could Benefit Medtronic

Acute care — short-term emergency services such as trauma care and surgery — has boomed in part due to an aging population. Medtronic and its competitors, such as fellow medical and surgical equipment manufacturer Stryker Co. NYSE: SYK, stand to benefit from increased utilization of their products. Given Medtronic's broad range of business lines and deep pipeline, it remains a healthcare stock to watch.