Investopedia: Medtronic's Midlife Crisis

Companies, like people, do not often grow old gracefully. More often than not, parts stop working right, it takes more effort to achieve the same ends, and the overall pace slows down. While some accept this and do the best they can, others resort to cosmetic fixes to patch over the ravages of age. To that end, Medtronic (NYSE:MDT) seems to be handling its maturity with integrity and realism. 

A Mediocre Quarter
Medtronic's fiscal third quarter results are not likely to excite long-term investors that much. Revenue grew less than 3%, which was mostly in line with analyst expectations and overall medical device sector growth. That, then, is part of the problem with Medtronic - it has matured to a point where it no longer flies ahead of the pack. Looking at some of the details, the company's core CRM business saw revenue decline 2%, while spine grew by 2% and cardio rose better than 7%. Diabetes and surgical technologies were also solid growers (up 10% and 8%, respectively), but they are relatively small businesses for Medtronic. (For more, see Keeping Pace At Medtronic.)

Third quarter earnings quality looks a bit problematic. Although the company did beat the consensus estimate for the quarter, gross margin fell more than a full point, and operating income dropped more than 3% (with operating margin contracted two points). Like so many other companies, an unexpectedly low tax rate allowed the company to meet the earnings bogey, but the quality of that beat is low. (For more, see Strategies Of Quarterly Earnings Season.)


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