Market news and an update from Medtronic.

Market News

US equity markets were little changed last night – S&P 500 (-0.3%); Nasdaq (+0.1%). This morning in Asia, Mainland China equities fell (-1.2%) while Hong Kong edged higher (+0.2%) following yesterday’s sudden rally. In Japan, the Nikkei 225 rose 0.5%. The FTSE 100 is currently trading 0.4% higher at 7,297. Sterling is $1.2757 and €1.1741.

Bloomberg writes that Fed Chair Jerome Powell is likely to sway to the hawkish side in his Jackson Hole comments, pushing Treasury yields higher. Ahead of the gathering of financiers, Treasuries rose – the 10-year yields 4.31% – and the dollar slipped. Gold moved up to $1,905 an ounce.

Nvidia’s earnings report is due postmarket, with the options market bracing for a large share-price gain. The stock touched a record yesterday before slipping. Meantime, Huawei is building secret semiconductor facilities across China that may let the blacklisted company skirt US sanctions, a trade group warned.

Global funds are shedding China’s blue-chip stocks, offloading $9.3bn over 12 days, the longest since Bloomberg began tracking the data in 2016. The sell-off comes as a prolonged housing slump raises contagion risks, with the equity benchmark among the world’s worst performers this month.

Oil was flat after a two-day drop, at $83.45 a barrel. ING expects any weakness will be short-lived. Iron ore gained for a fifth day to near its highest in a month, amid increasing speculation Chinese steel mills will grow output.

Gold isn’t losing its allure, according to a survey of a dozen money managers. All of them plan to maintain or raise their exposure to the precious metal in the coming 12 months, with five expecting gold’s price to reach a record. There’s pent-up demand waiting for the Fed to finish its tightening cycle, DWS Group said. It sees gold reaching a record $2,250 an ounce in the time period.

Source: Bloomberg

Company News

Yesterday afternoon, Medtronic released results for the three months ended 28 July 2023, the first quarter of its financial year to end-April 2024. The results were better than expected and the group raised its full-year guidance. In response, the stock was up 2%.

Medtronic is one the largest medical device companies in the world, with products to treat 70 health conditions, including cardiac devices, cranial and spine robotics, insulin pumps, surgical tools, and patient monitoring systems. 

During the latest quarter, revenue increased by 6.0% on an organic basis to $7.70bn, a touch better than the consensus estimate of $7.57bn. Growth was broad-based across businesses and geographies, driven by strong execution and improved underlying fundamentals. By region, US revenue grew by 4.7% in organic terms to $3.9bn, non-US developed market revenue was up 7.2% to $2.5bn, and emerging markets revenue grew 7.7% to $1.3bn.

The business is split into four ‘portfolios’: Cardiovascular (37% of FY2023 revenue); Medical Surgical (27%); Neuroscience (29%); and Diabetes (7%). During the latest quarter, Cardiovascular revenue grew by 6.2%, with a low double-digit increase in Structural Heart & Aortic, a mid-single digit increase in Cardiac Rhythm & Heart Failure, and low-single digit increase Coronary & Peripheral Vascular.

Medical Surgical grew by 6.1%, with a high single-digit increase in Surgical & Endoscopy and mid- single-digit growth in Patient Monitoring & Respiratory Interventions. Neuroscience grew by 5.6% in organic terms, with a mid-single digit increase in Specialty Therapies, Cranial & Spinal Technologies, and Neuromodulation. Diabetes revenue was up 6.3% in organic terms.

Medtronic continues to take action to improve the overall performance of the company, including streamlining its organisational structure and strengthening its supply chain. Most recently, the group completed the divestiture of its Renal Care Solutions business.

Gross margin was little changed at 66.4% as better-than-expected pricing offset inflationary pressures. A focus of expense management helped to push the operating margin up 90 basis points to 24.8%. EPS rose by 6% to $1.20, above the market forecast of $1.11. Free cash flow conversion improved to 86%, above the group’s target of 80% or higher. The group ended the quarter with net debt of $17.1bn.

The priority for capital allocation is innovation-driven growth investments while delivering consistent dividend returns to shareholders. The group is undertaking the largest planned R&D increase in its history (+10%) to accelerate long-term growth and capitalise on a long list of opportunities. There have been around 125 new product approvals in the last 18 months. Recent launches include the MiniMed 780G system with Guardian 4 sensor in Diabetes and the Micra AV2 and Micra VR2 leadless pacemakers in Cardiovascular. The group is also entering into minority investments, strategic partnerships, and incubators, with $1.6bn invested across 80+ companies as of July 2023.

The company remains committed to returning a minimum of 50% of free cash flow to shareholders, primarily through dividends, and to a lesser extent, share repurchases. The company is a constituent of the S&P 500 Dividend Aristocrats Index, having increased its payout for 46 consecutive years. The latest annual payment is expected to be $2.76 per share, up 1.5%, and equating to a yield of 3.3%.

Guidance for the financial year to end-April 2024 has been raised. Organic revenue is now expected to grow by 4.5%, at the top end of the previous 4.0%-4.5% guidance range, but still below the company’s long-term guidance. Adjusted EPS is expected to be $5.08-$5.16, a touch above the previous guidance $5.00-$5.10.

Source: Bloomberg