Medtronic plc (MDT) Q1 2026 Earnings Call Transcript

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Overview

The earnings call summary indicates a positive outlook with strong growth in Diabetes and MedSurg, despite margin challenges. The Q&A session highlights confidence in growth drivers like CAS and Ardian, and strategic plans such as the Diabetes business separation and increased R&D investment. Although management avoided specific growth projections, the overall sentiment is positive with expected high-margin market focus and strong guidance.

Key Financial Performance

Revenue Growth Medtronic achieved mid-single-digit revenue growth for Q1 2026, in line with guidance. Cardiovascular grew 7%, driven by nearly 50% growth in Cardiac Ablation Solutions (CAS). CAS growth was attributed to high demand for Pulsed Field Ablation systems and Sphere-9 catheters. Neuroscience grew 3%, supported by high single-digit growth in Neurosurgery and Neuromodulation. MedSurg grew 2%, and Diabetes grew 8%, driven by the 780G system and Simplera Sync sensor in international markets.

EPS EPS for Q1 2026 came in ahead of guidance at $1.26, $0.03 above the midpoint of guidance. This was attributed to strong revenue performance and operational efficiencies.

Cardiac Ablation Solutions (CAS) Growth CAS grew nearly 50%, including low 70s growth in the U.S. and Japan and low 30s growth in international markets. This was driven by high demand for Pulsed Field Ablation systems, Sphere-9 catheters, and Affera mapping systems. The growth reflects strong execution and high utilization levels of innovative products.

Neuroscience Growth Neuroscience grew 3%, supported by high single-digit growth in Neurosurgery and Neuromodulation. Growth was driven by the AiBLE spine ecosystem and closed-loop sensing technology in Pain Stim and Brain Modulation. Specialty Therapies businesses faced delivery challenges, slightly impacting growth.

MedSurg Growth MedSurg grew 2%, driven by high single-digit growth in Advanced Energy and emerging markets. Growth was offset by stable pressures in bariatric surgery and the shift to robotic surgery in the U.S.

Diabetes Growth Diabetes grew 8%, including 11% growth in international markets. Growth was driven by the 780G system and Simplera Sync sensor. Expanded indications for the 780G system and upcoming launches of new sensors are expected to further drive growth.

Adjusted Gross Margin Adjusted gross margin was 65.1%, down 80 basis points year-over-year. This was due to business mix impacts from CAS and Diabetes, offset by pricing discipline and COGS efficiency programs.

R&D Investment R&D investment increased by 7.7%, 100 basis points ahead of revenue growth. Significant capital was allocated to high-growth projects in Cardiovascular and Diabetes.

Adjusted Operating Margin Adjusted operating margin was 23.6%, supported by leverage in SG&A expenses and increased investments in growth areas like CAS and Ardian.

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Operating Highlights

Cardiac Ablation Solutions: Achieved nearly 50% growth driven by the rollout of PFA systems. Physician feedback and utilization levels are strong, with plans to add $1 billion in revenue from fiscal '25 base.

Diabetes Segment: Growth driven by the 780G system and Simplera Sync sensor in international markets. Upcoming launches include Simplera Sync and Instinct sensors, expected to drive revenue growth.

Neuroscience Innovations: High single-digit growth in Neurosurgery and Neuromodulation. Spine AiBLE ecosystem and closed-loop sensing technology in Pain Stim and Brain Modulation are driving share gains.

Surgical Robotics: U.S. launch of Hugo robotic system expected in the second half of the fiscal year, anticipated to contribute to growth.

Cardiac Ablation Market: Medtronic is targeting leadership in the $11 billion cardiac ablation market, which is growing over 25%.

Hypertension Treatment: CMS expected to finalize national coverage for Symplicity procedure by October 8, with plans to ramp U.S. launch.

Diabetes Market: Expansion in international markets with Simplera sensor technology and upcoming U.S. type 2 diabetes approval.

Operational Efficiencies: Focused on improving efficiency in COGS and operating expenses. Increased R&D investments by high single digits to fuel innovation.

Gross Margin Management: Gross margin impacted by business mix in CAS and Diabetes, but pricing discipline and COGS efficiency programs are mitigating factors.

Diabetes Business Separation: Separation of Diabetes business (MiniMed) on track, expected to be completed within 15 months. Anticipated to improve gross and operating margins.

Governance Enhancements: Appointed two new independent board members and created Growth and Operating Committees to oversee portfolio management and operational efficiency.

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Risk or Challenges

Neuroscience Growth Below Trend: The Neuroscience segment's growth was below trend due to delivery changes in Specialty Therapies businesses. This could impact revenue and growth momentum in the short term.

Pelvic Health Commercial Reorganization: Significant changes to the commercial organization in Pelvic Health during Q1 had a short-term negative impact on performance, though it is expected to improve in the future.

Diabetes Business Separation: The planned separation of the Diabetes business introduces execution risks, including potential disruptions to operations and financial performance during the transition.

CAS Business Supply Ramp: The rapid growth in Cardiac Ablation Solutions (CAS) is creating supply chain pressures, particularly in ramping up mapping systems and catheter supply to meet high demand.

Business Mix Impact on Margins: The mix of lower-margin capital equipment in CAS and early-stage manufacturing ramp in Diabetes negatively impacted gross margins, which could persist in the near term.

Tariff Costs: Tariffs are expected to cost approximately $185 million for fiscal 2026, posing a financial burden despite mitigation efforts.

Regulatory and Market Risks in Hypertension: The U.S. launch of the Symplicity procedure for hypertension is contingent on CMS finalizing national coverage, introducing regulatory uncertainty.

Competitive Pressures in Robotics: The Surgical business faces competitive pressures from the shift to robotic surgery, particularly in the U.S., which could impact growth.

Economic and Inflationary Pressures: Inflation and economic pressures are affecting COGS efficiency programs, potentially impacting profitability.

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Guidance & Outlook

Revenue Growth: Medtronic expects fiscal year 2026 organic revenue growth of approximately 5%. Revenue growth is expected to accelerate in the second half of the fiscal year, driven by growth in Cardiovascular, Neuroscience, MedSurg, and Diabetes segments.

Earnings Per Share (EPS) Guidance: The company raised its fiscal 2026 EPS guidance to a range of $5.60 to $5.66, up from the prior range of $5.50 to $5.60. High single-digit EPS growth is expected in fiscal year 2027.

Cardiovascular Segment Growth: The Cardiovascular segment is expected to see accelerated growth, particularly in Cardiac Ablation Solutions (CAS), which posted nearly 50% growth in Q1. CAS is projected to grow even faster in Q2 and contribute an incremental $1 billion in revenue off the fiscal 2025 base. The U.S. launch of the Symplicity procedure for hypertension is expected to ramp after CMS finalizes national coverage by October 8, 2025.

Neuroscience Segment Growth: Neuroscience growth is expected to accelerate starting in Q2 and further in the back half of fiscal 2026. Key drivers include the Pelvic Health business, Neurovascular growth, and new product launches in carotid stenting and hemorrhagic portfolios.

MedSurg Segment Growth: The MedSurg segment is expected to improve growth in the second half of fiscal 2026, supported by the U.S. launch of the Hugo robotic-assisted surgery system.

Diabetes Segment Growth: The Diabetes segment is expected to accelerate growth with the launch of two new sensors, Simplera Sync and Instinct, as well as expanded indications for the MiniMed 780G system. The planned separation of the Diabetes business is expected to be completed within 15 months and will be immediately EPS accretive.

Product Pipeline and Innovation: Medtronic is advancing its product pipeline, including next-generation technologies in Cardiovascular, Neuroscience, and Diabetes. Key innovations include the Sphere-360 catheter, MiniMed Flex insulin pump, and expanded AI and digital capabilities in Surgical Robotics.

Operational Efficiency and Margin Improvement: The company is focused on improving efficiency in COGS and operating expenses. The planned separation of the Diabetes business is expected to improve gross margin by 50 basis points and operating margin by 100 basis points.

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Shareholder Return Plan

Dividend Program: No specific mention of a dividend program was made during the conference call.

Share Buyback Program: No specific mention of a share buyback program was made during the conference call.

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Key Q&A

Q:What is the update on CAS and its impact on U.S. growth?

A:CAS showed 72% U.S. growth this quarter, with strong sequential growth, especially in Affera (near 60% sequential). The company is confident in accelerating U.S. growth through new technologies, including CAS, Diabetes, and Pelvic Health. CAS is expected to continue accelerating with high utilization and new catheter technologies like Sphere-360.

Q:What is the purpose of the new Board committees focused on growth and operations?

A:The new committees aim to provide focus and support management, particularly on growth and operational performance (e.g., margins, supply chain). They will involve more frequent interactions with management and include two new directors with deep med tech experience to drive value creation.

Q:Is the $2 billion annual CAS sales target for fiscal '26 achievable?

A:Management remains confident in achieving the $2 billion target for fiscal '26, with CAS growth accelerating sequentially and strong performance across technology, commercial execution, and geographic expansion.

Q:What is the role of the new directors and committees in capital allocation and portfolio optimization?

A:The new directors and committees will focus on value creation through more M&A, portfolio optimization, and reinvestment in growth drivers. They aim to reorient the portfolio towards higher growth and invest more in R&D and growth-oriented G&A without compromising EPS growth.

Q:What is the expected impact of major growth drivers like Diabetes, Ablation, and Ardian on overall portfolio growth?

A:Major growth drivers like CAS, Ardian, and others are expected to have a significant macro-level impact on growth rates. However, specific quantification will be provided during the Investor Day in mid-'26. Management emphasized that these drivers are incremental to the base business.

Q:What is the outlook for Renal Denervation (Ardian) and its market potential?

A:Renal Denervation is expected to be a transformative growth driver with a massive market potential, targeting 18 million people with uncontrolled hypertension in the U.S. The company is optimistic about its reimbursement framework and physician society support, positioning it as a multibillion-dollar opportunity.

Q:What is the status of the Diabetes franchise and its upcoming innovations?

A:The Diabetes franchise is ramping up production of Simplera and preparing for the launch of the Abbott-based sensor Instinct. The U.S. market is expected to see growth acceleration in the second half as these innovations roll out. The IPO separation strategy is on track, with completion expected within 15 months.

Q:What is the progress and outlook for the Hugo robotic surgery system?

A:Hugo is making progress with deployments in over 30 countries and tens of thousands of procedures logged. The system is well-received for its modular design and partnership approach. FDA approval for urology is progressing, with hernia and GYN indications to follow. The company is preparing for a U.S. launch in the back half of the year.

Q:What are the growth prospects for slower-growth businesses like Neurovascular and Pelvic Health?

A:Neurovascular is expected to accelerate with new products and recovery from VBP impacts. Pelvic Health is poised for significant growth with the launch of tibial nerve modulation technology, which could expand the market for overactive bladder treatments.

Q:Review of Unclear Management Responses

A:Management avoided providing specific growth rate projections for the overall portfolio, instead deferring detailed financial targets to the Investor Day in mid-'26. Additionally, while they emphasized the transformative potential of growth drivers like Ardian and CAS, they did not quantify their exact contribution to overall growth.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

MDT Transcript

Medtronic plc (MDT) Q2 2026 Earnings Call Transcript

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