Dividend Growth Newsletter holding Medtronic (MDT) reported wonderful fourth quarter results. Revenue grew 4% on a reported basis (5% ex-currency) to $4.5 billion, easily exceeding consensus estimates. Earnings per share, excluding the impact of restructuring, were 11% higher than a year ago at $1.10 per share, largely exceeding consensus expectations. Free cash flow for the full year was terrific, registering $4.4 billion.
Spinal therapies have been a source of weakness in prior quarters, but revenue came in flat for the quarter, helping the firm's regenerative therapies group increase sales 4% year-over-year for the quarter to $2.1 billion. Though the sales decline in spinal therapies moderated, the company posted 11% growth in its surgical technologies business, which continues to be a growth driver. The company's surgical technology products do not include robotic surgery like Intuitive Surgical's (ISRG) da Vinci, for example, but demand for its 3D imaging technology, navigation, and instruments business remains robust. In fact, the firm's StealthStation remains one of the best-in-class products for neurosurgery. Neuromodulation was also relatively strong, with revenue growing 7% year-over-year on a constant basis.
The Cardiac and Vascular Group's growth remained on track, with revenue up 4% (5% ex-currency) to $2.3 billion, driven by strong international expansion of 7% (excluding currency). Not surprisingly, drug-eluting stents continue to drive group growth, with sales up 22% year-over-year as market share increased. Management provided some interesting commentary on the product's growth, saying:
"…the Resolute Integrity launch, we basically went from a 10% market share to a 30% market share, with no extension of our sales force in terms of adding new people. And the way we did that was marry up the existing coronary focused sales reps with mostly CRDM clinical specialists who had excellent cardiology relationships to be able to basically move much more quickly in terms of putting those products into the market."
Medtronic remains a leader in heart-related devices, and sees potential for its next generation drug-eluting balloon to have an impact in the US in fiscal year 2016. In fact, management is confident that it will own the next generation of treatments at several different price points. Given the company's route to success with Resolute, we are confident the firm will be able to quickly establish a market for its products without overinvesting in the sales force.
Looking ahead, we think like Medtronic's guidance, which calls for earnings per share growth of 6-8%, or $3.80-$3.82. We believe this will result in slightly higher free cash flow expansion, which will be returned to shareholders via stock repurchases and dividends. While its yield may not be very high at this time, we believe dividend growth will continue at a solid pace in coming years. As a result, we will continue to hold shares in the portfolio of our Dividend Growth Newsletter.