(www.forbes.com) Medtronic‘s recently reported fourth quarter fiscal 2014 results reflected operational revenue growth of 3.3% year-over-year (y-o-y) to about $4.57 billion, driven by growing acceptance of new products and robust sales in emerging markets. The company’s largest divisions,
Cardiac Rhythm Disease Management and Cardiovascular, continued to grow in low single digits driven by sales growth of over 50% in Atrial Fibrillation and 9% in the Structural Heart business. Other businesses such as Neuromodulation, Surgical Technologies and Diabetes also registered robust revenue growth, which offset declines in the Spinal division. International sales accounted for 47% of total revenues for the medical device maker, driven by 14% y-o-y growth in emerging markets.
In its earnings call, Medtronic also announced that it had negotiated a settlement with Edwards Lifesciences over their patent infringement legal dispute concerning its CoreValve device. The settlement included a one-time charge of $750 million and certain minimum annual royalty payments to be paid by Medtronic to Edwards. As part of these obligations, Medtronic incurred a one-time charge of $589 million in the fourth quarter, increasing its total expenses over 23% y-o-y to about $4.1 billion. This resulted in a 54% decline in net income from the prior year quarter to $448 million. If we adjust for the aforementioned charges and other non-GAAP items, the company’s Q4 net earnings were $1.135 billion, an increase of 1% over the same period last year.
Gross margins were flat at 74.8% on an operational basis, on the back of certain unfavorable price adjustments in Japan and expenses related to addressing product quality issues in Neuromodulation and Diabetes. For fiscal 2015, the company expects gross margins to be in the range of 74.5-75% on a constant currency basis due to the ongoing quality improvement expenses.
Spine Suffers
Spine revenue declined 2% y-o-y to $786 million on account of flat sales in the Core spine business and a decline in Balloon Kyphoplasty Procedures and Bone Morphogenetic Proteins products. Excluding BKP, Spinal division sales improved by 1% over the prior year period. The company’s procedural innovation and ‘surgical synergy program’ is driving surgical equipment and spinal implant sales and helping regain acceptance in the U.S. Spine market, where it continues to face legal claims over its bone graft paste Infuse. Spinal sales are expected to get a further boost in the coming quarters as the company is planning a summer launch of its Prestige LP next-generation cervical disc in the U.S. market this year.