Medtronic today announced financial results for Q4 2014 which ended April 25, 2014. Omar Ishrak, Chairman and CEO of Medtronic Inc. (NYSE: MDT) discussed the earnings results in detail on a conference call held earlier today. Below is the full commentary…
Good morning, and thank you, Jeff. And thank you to everyone for joining us today. This morning, we reported fourth quarter revenue of $4.6 billion which represents growth of 3.3% and Q4 non-GAAP diluted earnings per share of $1.12.
Before providing more detail on our Q4 performance, I would like to recap fiscal 2014. We grew our FY14 revenue 4% which was in line with our revenue outlook for the year and just within our mid single digit baseline goal.
It represented another year of delivering consistent results. We made solid progress in a number of areas over the past year, including quantifying, communicating and executing on each of our independent growth vectors.
Our first growth vector, new therapies contributed 180 basis points of growth in FY14, as we launched several significant new products that provide tremendous patient benefit and will serve as important future growth platforms.
In our emerging markets, we sustained double-digit growth, which contributed nearly 150 basis points to our overall revenue growth and represented 12% of our global business in FY14.
Finally, on our third growth vector, services and solutions, we sharpened our focus and economic value, translating our efforts into new value-based business models, including our cath lab managed services and Cardiocom offering which combined contributed 30 basis points of growth and $51 million of incremental revenue.
Healthcare payments and delivery systems are changing and evolving around the world. Through these efforts, we feel we are well-positioned not only to respond to these system changes but to demonstrate the role medical technology and related services can play in making this healthcare transformation successful.
Looking at the P&L, while we delivered a modest amount of SG&A leverage on an operational basis, we failed to meet our SG&A leverage goal for the year due to our Q4 spending which I will address in a minute.
However on an operational basis, we did deliver 50 basis points of operating leverage in FY14. And looking at our FY14 EPS, we were in the middle of our guidance range for the year covering for the incremental pressure from the medical device tax.
Looking at free cash flow, we had a very strong year in FY14, generating $4.6 billion as we continued to deliver on our working capital improvement program. This translated into strong shareholder returns as we met our goal of returning 50% of our free cash flow to shareholders in the form of dividends and share buybacks.
Achieving these financial metrics ultimately reflects the dedication and passion of over 49,000 employees living our mission everyday, collaborating with our partners in health care to deliver therapies and services to millions of patients around the globe, reducing pain, restoring health and extending lives.
Looking at our Q4 performance, while our 3% revenue growth was in line with our full-year revenue outlook, it fell just short of our middle single digit growth baseline goal. However it is worth noting that this performance was against the difficult comparison of 5% growth last year — strong performances from some of our key high growth businesses, including the AF solutions business in CRDM, DBS business in neuromodulation, surgical technologies and diabetes helped to offset challenges in other areas.
In core spine, the business showed stability again in Q4, consistent with our results all year. We also saw a solid growth in our new services and solutions businesses, Cardiocom and Cath lab managed services. At the same time, our recently introduced new products continued to drive growth. The MiniMed 530G system with the Enlite sensor is taking meaningful share, resulting in strong U.S. diabetes growth.
In CRDM, we had a very successful global launch of Reveal LINQ, a differentiated, miniaturized cardiac diagnostic monitor. This technology has been extremely well received by both patients and physicians, and promises to be an important new tool in cardiac and stroke diagnostics.
In structural heart, our U.S. launch of CoreValve is off to a good start, as we treat patients with extreme risk for surgery, with this unique technology. We are excited about the momentum we see in all of these areas and the future growth that they represent.
We also faced some challenges in Q4. The U.S. pacemaker and ICD markets were both a little slower than we were expecting. In addition, share gains in the U.S. pacing systems were offset by share pressure in U.S. defibs. In spine, while our core business, excluding BKP, posted modest growth, BMP and BKP declined, though both continued to show sequential stability.
We are continuing to implement our plan to broaden our BKP product line, including adding new products in interventional spine. Chris O’Connell will share details of this with you at our upcoming analyst meeting.
In BMP, we pointed out at our last earnings call that we faced a difficult year–over–year comparison following the resolution of a supply disruption last year. In neuromodulation, our Gastro-Uro business saw weaker than expected new patient demand in early calendar 2014, which we believe was due in part to insurance changes for elective procedures in the U.S. We also continued to face some challenges from non–device alternatives.
We’ve seen some recent improvement in new patient trends and remain confident in our ability to demonstrate the unique value of interest in therapy as the basis for attractive growth in this business.
We had four major U.S. clinical data presentations in Q4: CRYSTAL-AF, CoreValve for high–risk, SYMPLICITY HTN-3, and IN.PACT Admiral DCB. CRYSTAL–AF was presented at the American Stroke Association’s International Stroke Conference in February, where its compelling data demonstrated that our Reveal cardiac diagnostic monitor detected AF better in patients with recent cryptogenic strokes than standard care.
At ACC in late March, impressive results from our CoreValve high–risk US Pivotal Trial were presented, showing superiority over surgical valve replacement at one year. In addition, the low mortality rates of our differentiated CoreValve system in patients considered high risk for surgery exceeded expectations. I was at ACC, and many physicians shared with me their personal excitement regarding these ground–breaking results.
Also at ACC, we shared our analysis of the HTN–3 data for treatment resistant hypertension. While HTN–3 met its primary safety endpoint, it was disappointing that it did not meet the primary efficacy endpoint.
We convened an independent panel of expert physicians and researchers to advise us in next steps for our RDN program. Based on their input, we decided to continue to provide access to SYMPLICITY in countries where it is approved, and continue to enroll patients in the Global SYMPLICITY Registry.
We are not abandoning renal denervation opportunity. We will continue to bring insight from the HTN–3 trial and map the clinical and commercial path forward in collaboration with the FDA.
One week after the ACC the extremely positive results of our IN.PACT Admiral Drug–Coated Balloon US Pivotal Study represented at the Charring Cross Symposium in London. This study showed patients with peripheral artery disease in the upper leg experienced significantly better outcomes at 12 months when treated with IN.PACT Admiral than those treated with standard balloon angioplasty. We are currently expecting FDA approval of the IN.PACT Admiral about this time next year and believe the global market for DCB could be $1 billion by 2020, a driver of growth not only for our endovascular business, but for overall Medtronic.