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Summer Computer Outage Had Little Impact on Medtronic’s Q1

The medical device maker beat Wall Street’s earnings estimate, but came up short on revenue.

Summer Computer Outage Had Little Impact on Medtronic’s Q1
A computer system disruption that took Medtronic’s global customer ordering, distribution and manufacturing processes offline for a week in mid-June did little to dampen the medical device maker’s first quarter.
 
All but one of Medtronic’s business divisions reported sales growth for the three-month period ending July 28. Revenue from its largest division, cardiac and vascular, grew by 5 percent over last year. An uptick in sales of surgical and recovery products pushed Medtronic’s minimally invasive therapies group sales up 3 percent, while sales from its restorative therapies group—which includes spine and brain therapy products—improved year-over-year by 2 percent.
 
Its diabetes division was the only group to not improve. Sales decreased by 1 percent, Medtronic said.
 
Total revenue for the quarter improved 3 percent over last year to $7.39 billion. The result was a bit below Wall Street’s estimate. Analysts polled by Zacks Investment Research expected Medtronic’s revenue to be $7.45 billion for the quarter.
 
Medtronic, which was founded in and maintains its U.S. operational headquarters in Fridley, managed to top analysts’ earnings estimates. From about $1.54 billion in profit, the company reported adjusted earnings of $1.12 a share. Wall Street’s prediction came in four cents lower.
 
“The strength of our diversification and solid underlying performance of our businesses, combined with the stable growth of our end markets, enabled us to manage the impact of a global IT system disruption and temporary diabetes sensor supply constraint,” said Medtronic chief executive Omar Ishrak in a statement. “While these temporary issues had affected first quarter revenue growth, we continued to drive operating margin expansion. This resulted in double-digit constant currency earnings per share growth, consistent with our long-term expectations.”
 
Ishrak told analysts during a conference call Tuesday that the IT disruption, which began on June 19, was a result of “inadvertent human error” that misconfigured certain data storage systems it ran. “Our team rose to the occasion to ensure product was available to customers and patients during the disruption and then worked tirelessly to fulfill backlog that built up during the event,” he said. “We are pleased to put this event behind us.”
 
Medtronic reiterated its strong outlook for the fiscal year, which detailed a 4 to 5 percent uptick in revenue year-over-year (based on constant currency figures) and adjusted earnings per share growth of up to 10 percent.
 
“Looking ahead, we have now entered a period of clear acceleration in our innovation cycle, and we expect to see increasing momentum coming from several new product launches over the balance of the fiscal year,” Ishrak said.
 
Medtronic shares were down roughly 2 percent on Tuesday from its Monday close of $83.52.
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