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Executives

Gary Ellis - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Omar Ishrak - Chairman and Chief Executive Officer

Jeff Warren - Investor Relations

Analysts

Matthew Dodds - Citigroup Inc

David Roman - Goldman Sachs Group Inc.

Robert Hopkins - Lehman Brothers

Michael Weinstein - JP Morgan Chase & Co

Larry Biegelsen - Wells Fargo Securities, LLC

Kristen Stewart - Deutsche Bank AG

David Lewis - Morgan Stanley

Joanne Wuensch - BMO Capital Markets U.S.

Medtronic (MDT) Q1 2012 Earnings Call August 23, 2011 8:00 AM ET

Operator

Good morning. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Medtronic's Q1 Earnings Release Conference Call. [Operator Instructions] I'd like to now turn the call over to Mr. Jeff Warren. You may begin, sir.

Jeff Warren

Thanks, Andrea. Good morning, and welcome to Medtronic's First Quarter Conference Call and Webcast. During the next hour, Omar Ishrak, Medtronic Chairman and Chief Executive Officer; and Gary Ellis, Medtronic Chief Financial Officer, will provide comments on the results of our fiscal year 2012 first quarter, which ended July 29, 2011. After our prepared remarks, we'll be happy to take your questions.

First, a few logistical comments. Earlier this morning, we issued a press release containing our financial statements and our revenue-by-business summary. You should also note that some of the statements made during this call may be considered forward-looking statements and that actual results might differ materially from those projected in any forward-looking statement. Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC. Therefore, we do not undertake to update any forward-looking statement. In addition, the reconciliations of any non-GAAP financial measures are available on the Investor portion of our website at medtronic.com.

Finally, unless we say otherwise, references to quarterly results, increasing or decreasing, are in comparison to the first quarter of fiscal year 2011, and all revenue growth rates are given on a constant-currency basis.

And with that, I'm now pleased to turn the call over to Medtronic Chairman and Chief Executive Officer, Omar Ishrak.

Omar Ishrak

Good morning, and thank you, Jeff. And thank you, everyone, for joining me on my first earnings call as Chairman and CEO of Medtronic. You know in the 8 weeks since joining the company, I've been meeting with our employees and customers around the globe. And it's clear to me that Medtronic has many strengths that differentiate us as the world's leading medical technology company. In fact, Medtronic's singular focus on healthcare is what attracted me to this company.

Medtronic's stated mission, sense of purpose and strong customer focus are well aligned with my personal values. I'm passionate about healthcare and excited to be part of a company that has a long track record of delivering technology solutions to improve healthcare.

The opportunity in this industry are enormous. Across the world, we are in a continuous quest to improve healthcare. People everywhere want better outcomes, fewer errors, quicker recoveries, fewer side effects. But at the same time, there is continued pressure on global healthcare costs. The present trends are clearly unsustainable, especially given the demographics in the developed world. It is therefore paramount that we develop solutions that not only improve healthcare, but do so while delivering better economic value. And finally, the biggest long-term opportunity will be our ability to meet the needs of the billions of people that have no access to healthcare at all.

In visiting with employees around the globe, I've been impressed by a number of key strengths within Medtronic. First, I've been impressed by the breadth and depth of our technical expertise. In addition, our clinical and economic evidence-generating capabilities are some of the best that I've seen. Second, I've been pleasantly surprised by the number of synergies across our businesses, whether it's in our operations, technology, customer base or disease progression, value is created across our combination of businesses. And looking ahead, I believe there is great potential to further leverage Medtronic's breadth and capabilities.

And finally, Medtronic offers a strong financial platform on which to build. The company's solid cash flows and balance sheet give us the flexibility, not only to make disciplined investments for future growth, but also maintain our commitment to returning significant amounts of capital to our shareholders.

Although Medtronic possesses a number of strengths, it is clear that our industry is facing a very challenging environment. The macroeconomic conditions in many developed countries have led to constrained healthcare budgets and increased pressure on utilization. This directly affects the financial health of our customers. A key part of our industry's long-term success, therefore, would be the ability to provide medical technology that clearly demonstrates customer economic value at both the provider and payer levels.

While Medtronic has world-class capabilities and clinical research and healthcare economics, we have not consistently translated them into meaningful and succinct economic value propositions directly for our customers. Successfully demonstrating the clinical and economic value of our technology to our customers on a broad and consistent basis will result in our customers delivering better, more cost-effective patient care, while improving their profitability at the same time. We're well positioned to lead this effort by leveraging our core competencies as well as our overall breadth.

It's also an opportunity for us to differentiate ourselves from our competition. Demonstrating that medical technology can be part of the solution for removing waste from the healthcare system and improving our customers' financial health will support medtech's increased share of healthcare spending.

Our ultimate goal, however, is to improve goal for Medtronic. While the systematic usage of customer economics is a critical tool in this endeavor, I believe that there are 3 key imperatives to deliver sustained growth: improving our execution, optimizing innovation and accelerating globalization. And let me address these one at a time.

First, I'm focused on delivering crisp and consistent execution across the company, starting with me and the leadership team. I'm taking initial steps to ensure our business units, geographies and functions have completely aligned goals with the clear understanding of their roles and responsibilities. I will drive more operating rigor throughout the organization and will expect more accountability and follow-through on commitments, goals and deadlines at all levels. Improvements in these areas are critical to driving operating efficiencies and delivering better, more predictable and sustained business performance.

Let's now discuss our process for innovation, my second area of focus. Optimizing our innovation process will lead to improved R&D productivity. We've made significant investments in R&D over the years, both internal and external, with frankly, unsatisfactory returns. This is not acceptable, and clearly cannot continue and will require some major changes. Perhaps the most important area that needs improvement is our method of selecting and prioritizing our investments. Central to the new process will be the broad incorporation of the customer economics concept that I mentioned earlier. We need to clearly demonstrate to our customers with evidence that the use of our technologies will improve their overall profitability.

In addition to focusing on customer economics, we will look for ways to get additional growth from our existing therapies. Historically, Medtronic is focused on adding new high-end therapies, an incremental innovation to drive growth. While this has often worked in the past, in today's environment, with longer regulatory cycles and more cost-sensitive buyers, we must look for new and creative ways to generate growth. I want our businesses to significantly increase their focus on truly understanding how to expand penetration of our existing therapies. We need to understand, in granular detail, the barriers that prevent our products from becoming the standard of care. We must do this for every product in every major country and prioritize these opportunities by their economic value and also by the degree of difficulty in developing the evidence necessary to prove that economic value.

In addition, I'm challenging our businesses to think more broadly across the patient care continuum to look both upstream at how targeted diagnostics can better select patients that need our therapies and downstream, by developing new business models around connected care and chronic disease management for patients who have our devices.

Now let me explain my third area of focus, which is to accelerate globalization. There's no doubt that the global healthcare opportunity, especially in emerging markets is immense, and will continue to grow. We must capitalize on this tremendous market opportunity by accelerating our international investment to drive growth. While Medtronic is a solid international presence, I believe we can further leverage this platform and accelerate our growth trajectory. We're taking initial steps to create a more optimal global structure, to ensure we have deep engagement by our business teams. I'm challenging our entire organization to generate fresh, new ideas, using our latest and most innovative technologies to create new and potentially disruptive business models, specifically directed towards each of the major emerging markets. Through this process, we will significantly increase our investment in local R&D, manufacturing and strategic partnerships in these regions. We will also be active in helping to build on healthcare infrastructure where needed. I'm confident that through these efforts, the underserved population around the world will rapidly gain access to Medtronic's technologies, thus unlocking enormous business opportunities.

Focusing on execution, innovation and globalization is the key to Medtronic's long-term success. Obviously, I still want to learn, but I'm singularly focused on leveraging the tremendous resources at our disposal to drive growth and long-term performance. I look forward to updating you on the progress Medtronic is making over the coming quarters.

Now before Gary walks you through the details, I wanted to make some high-level comments about the quarter. We grew revenue 7.3% as reported or 2.4% on a constant-currency basis this quarter. Looking at these results, I think it's worth noting that over 60% of our business is growing at a combined 8% as new products are, in many cases, taking share, improving pricing or growing new markets. I was pleased by the double-digit growth in several businesses, including transcatheter valves, AF Solutions, Endovascular, Uro/Gastro and CGM. Also, Coronary and Surgical Technologies both delivered solid growth in the mid to high-single digits.

Now at the same time, ICDs and Spinal, which account for the remaining 40% of our business continued to struggle, and together declined 6%. In ICDs, our performance was directly tied to the market as the U.S. market continues to feel the impact from a number of factors, including the DOJ's investigations, the January JAMA article and the continued trend of increased hospital ownership of physician practices.

While we gained share in the U.S. sequentially, I'm emphasizing to the team that we must develop and execute growth strategies even in this market. These strategies will include increasing our penetration of international markets, continuing to broaden our product offering to EPs and developing a compelling economic value proposition to the hospital buyer.

In Spinal, our Q1 growth challenges were confined to the U.S. market where we faced acute pressure related to the INFUSE articles, as well as the general ongoing issues with fewer procedures, pricing pressure and the increasing prevalence of physician-owned distributors. I was disappointed with our basic operating performance as we continued to lose share. This has been a difficult journey, but we are still a clear market leader and committed to winning in this market. We're continuing to launch a series of key new products that we believe will have a big impact on our performance.

I've also asked the team to take a fresh look at our strategies to leverage our unique capabilities and total procedure solutions to create economic value for our customers. And finally, I want to make it clear that as we pursue our Spinal strategies, we will always lead the market with integrity, quality and patient outcomes as our primary drivers.

In summary, while we expect our ICD and Spinal businesses will continue to be under pressure this year, we do expect the rest of our portfolio to continue to generate growth.

I also want to point out that Medtronic's acquisitions over the past 3 years are adding to our growth today, and these platforms are expected to be even larger contributors going forward. This quarter, we continued to make progress on the CoreValve U.S. pivotal study and received IDE approval to start our Ardian U.S. pivotal study. In addition, products that came from our acquisitions of CryoCath, ATS Medical, Invatec and Osteotech all made solid contributions to our growth this quarter.

In July, we announced our intent to acquire Salient Surgical and PEAK Surgical. We believe Salience and PEAK will allow us to target a leadership role in advanced energy surgical technologies and broaden our portfolio of innovative surgical products. These 2 companies represent the types of acquisitions we plan to make. We're focused on acquiring strategic tuck-ins that create real value where we can attach them to business teams that are executed.

Geographically, I was also pleased with the solid performance across our international businesses, with 46% of our overall revenue now coming from markets outside the U.S. Emerging markets grew 25% this quarter, led by strong performances in Latin America and Greater China. Emerging markets now represent 10% of our revenue as they have grown nearly 20% annually for the past 4 years.

Given the immense opportunity in these markets, I believe this growth is sustainable. I am focused in accelerating globalization and expect to improve our international growth substantially over the long term.

Looking down the income statement, our operating performance was unsatisfactory, with our EPS basically flat. Going forward, we expect to realize the full benefit of the restructuring that occurred in Q4, continue to leverage -- continue to deliver SG&A leverage and attempt to offset our dilution from recent acquisitions.

Before I conclude, I'd like to comment on INFUSE. We're committed to integrity, quality and patient safety, which govern our customer relationships, our policies and our priorities. While recent articles raised questions about the peer-review process and physician-industry relationships, it is important to note that they did not raise questions about the integrity of the data Medtronic submitted to the FDA for approval or any other subsequent reporting. We strongly believe that these data support the safe use of INFUSE for indications already approved by the FDA. However, because questions are being raised about the peer-reviewed literature, we recently announced that we are taking the extraordinary measure of having Yale University conduct 2 independent systematic reviews of all INFUSE-related clinical data. We will also make all of the INFUSE clinical trial data and results available to medical researchers. This initiative's a direct reflection of our commitment to our mission, which calls in us to be the unsurpassed standard of comparison and to be recognized as a company of dedication, honesty, integrity and service.

We look forward to the results of these reviews. Gary will now take you through a more detailed look at our quarterly results. And at the end of the call, I'll make some brief closing comments. Gary?

Gary Ellis

Thanks, Omar. First quarter revenue of $4,049,000,000 increased 7.3% as reported or 2.4% on a constant-currency basis after adjusting for a $186 million of favorable effect of foreign currency.

Breaking this out geographically, revenue in the U.S. of $2,206,000,000 declined 1%, while international sales of $1,843,000,000 increased 19% as reported or 7% on a constant-currency basis. Q1 international revenue results by region were as follows: Latin America grew 30%; growth in greater China was 28%, Middle East and Africa grew 17%; growth in Other Asia was 8%; Canada grew 4%; growth in Japan was 2%; and Europe and Central Asia growth slowed to 3%, which includes revenue deferral of $7 million in Greece due to the current economic environment and payment uncertainty.

Q1 GAAP earnings and diluted earnings per share were $821 million and $0.77, a decrease of 1% and an increase of 1%, respectively. After adjusting for acquisition-related items, as well as the noncash charge for convertible debt interest expense, first quarter earnings and diluted earnings per share on a non-GAAP basis were $845 million and $0.79, a decrease of 3% and 1%, respectively. It is worth noting that after adjusting for the onetime tax benefit we received in Q1 last year as well as the RDN dilution, our non-GAAP diluted earnings per share increased 3%.

In our Cardiac and Vascular Group, revenue of $2,206,000,000 grew 3%. Results were driven by double-digit growth in Structural Heart, Endovascular, AF Solutions and Physio-Control, as well as growth in coronary and pacing, offset by declines in ICDs.

CRDM revenue of $1,253,000,000 declined 3%. Worldwide ICD revenue of $697 million declined 8%, and we estimate that the worldwide ICD market declined in the mid-single digits. Our U.S. ICD business declined 12%, and we estimate that the market declined in the high-single digits. As Omar noted, the U.S. ICD market continues to feel the impact of a number of factors that are affecting procedural volumes and pricing.

Despite the market slowdown, we are pleased with the impact our recently approved Protecta high power devices are having on share and pricing. We estimate our U.S. high-power share was up over 100 basis points sequentially. Protecta's SmartShock Technology is commanding mid-single digit price increases, which is helping to improve the mid-single digit pricing declines we have seen in U.S. ICDs. With Protecta's launch still ramping, our U.S. high-power pricing was relatively stable sequentially.

Our international ICD business declined 1% while the market was flat. In Europe, we continued to gain share on the strength of Protecta, as well as our value-segment products, Cardia and Egida.

In Japan, we lost some share in Q1, but are confident that our DF-4 connector devices, which are expected to launch in Q2 should help to reverse this trend.

Pacing revenue of $508 million grew 1% as the market continued to decline in the low-single digits. U.S. pacing grew 1%, and we gained 250 basis points of shares sequentially, driven by the Revo MRI SureScan pacemaker. In addition, Revo's solid double-digit percentage price uplift has offset the pricing pressure we experienced in pacing over the past several years. Our international pacing business grew 1% while we estimate the international pacing market was flat.

Our AF Solutions business grew in excess of 40%, driven by the ongoing successful launch in the U.S. and the continued adoption in Europe of our Arctic Front cryoballoon. We are taking share in this important market and continue to expect this business to grow 30% to 40%.

Our CardioVascular businesses posted another strong quarter with revenue of $850 million growing 11%, with 10% growth in the U.S. and 11% growth in the international markets. Coronary revenue of $389 million grew 6%, including $6 million of revenue from Ardian. It is worth noting that our Peripheral business is now part of Endovascular. Worldwide drug-eluting stent revenue in the quarter was $193 million, including $43 million in the U.S. This quarter, we received approval for Resolute Integrity DES in Australia, and we continue to expect a late FY '12 approval of Resolute in the U.S., which we believe will be a meaningful driver of revenue growth.

To put some perspective on this U.S. opportunity, in Europe, where we have more competitors than the U.S., our DES share is merely double our share in the U.S. In fact, in markets where we have regulatory approval for our Resolute Integrity drug-eluting stent and Integrity bare-metal stent, Medtronic holds the market leading coronary stent share position.

Turning to Ardian, this multi-billion dollar opportunity in hypertension is progressing well. On the commercial front, customer excitement around Ardian is building as we expand into new centers in Europe and Latin America. In July, we received U.S. IDE approval for our SYMPLICITY HTN-3 pivotal study. We are in the final stages of selecting our 60 sites, and we expect the first procedure to occur shortly. We believe Ardian represents one of the most significant product advances in medtech, and we intend to maximize its potential.

Structural Heart revenue of $275 million increased 15%, which included $20 million of revenue from ACS. Our CoreValve transcatheter valve business continues to drive growth with a TCV market now annualizing at over $625 million and growing over 50%. We continue to split the market with our competitor and are seeing strong, early adoption of our 31-millimeter CoreValve, which receives CE Mark approval in July. We continued to expect CE Mark approval for our 23-millimeter CoreValve on the 16 French delivery system in the second half of FY '12.

In the U.S., we are pleased with the progress of our CoreValve pivotal trial. Enrollment is well underway, and all 40 sites are active. In surgical valves, we grew 20% on the strength of ATS. ATS revenue grew 6% sequentially, including double-digit growth in mechanical valves.

Turning to our Endovascular and Peripheral. Revenue of $186 million grew 16%. In the U.S., revenue growth of 27% was driven by the continued success of the Endurant Abdominal Stent Graft. In peripheral, we continue to see strong market acceptance for our drug-eluting balloon in international markets, which had outstanding double-digit growth.

Physio-Control revenue of $103 million increased 17%. This business had strong growth in the pre-hospital segment as the LIFEPAK 15 and LUCAS chest compression system continue to take share. This business also gained share in the AED market on the strength of our LIFEPAK CR Plus and LIFEPAK EXPRESS. We continue with our efforts to divest Physio-Control.

Now turning to our Restorative Therapies Group. Revenue of $1,843,000,000 grew 2%. Growth was driven by another quarter of solid performance in Diabetes and Surgical Technologies, as well as growth in Neuromodulation, offset by challenges in Spinal. Spinal revenue of $825 million declined 3%. This quarter, global spine market growth of approximately 1%, and U.S. market decline of at 1% were both modestly slower than last quarter.

Although the market continues to be challenged, our Spinal business grew 7% in international markets on the strength of new products. In Core Spinal, which includes Core Metal Constructs, IPDs and BKP products, revenue of $610 million declined 5%, as this business continues to feel the impact of its exposure to VCF and IPD markets. Core Metal Construct products declined 3%. Although new product lines, including Solera, VERTEX SELECT and ATLANTIS VISION ELITE cervical plates, are generating growth with their ongoing launches. They are still ramping up and account for only a small percentage of our U.S. core spinal revenue mix today.

In Kyphon, revenue declined 13%. We launched the Xpander II balloon late in the quarter and looking ahead, believe that new products, the Japan expansion and the increasing awareness of our growing body of positive clinical evidence will stabilize Kyphon.

Biologics revenue of $215 million grew 2%, driven by Osteotech, which added $23 million in revenue. Sales of INFUSE declined 8% for the quarter, but declined in the upper teens in the period following the publication of The Spine Journal articles in late June.

Turning to Neuromodulation. Revenue of $397 million increased 4%. Results were driven by double-digit growth in InterStim, as the sales force additions and market development investments made in the second half of the last fiscal year are starting to pay off.

In pain, the RestoreSensor spinal cord stimulator with our proprietary AdaptiveStim technology continues to perform well in Europe, and we expect to launch this breakthrough technology in the U.S. later this fiscal year.

In DBS, we had solid growth in the U.S. and continue to see very little impact from competition in international markets. In Uro/Gastro, we are focusing on training U.S. colorectal surgeons on the U.S. of InterStim Therapy for bowel control as we ramp this launch.

Diabetes revenue of $355 million grew 9%, driven by strong double-digit growth in CGM. Our CGM business continues to hold the vast majority of market share, driven by sales of our soft sensor in the U.S. and our recently launched Enlite Sensor in international markets. Enlite is one of the most important advances in CGM technology in many years as it is more comfortable, accurate and easier to use than previous sensors. We continue to invest heavily in a broad range of diabetes technologies, including those leading to a closed-loop system. For example, we are working toward IDE approval of our U.S. study for our Veo insulin pump with its low glucose suspend technology.

Surgical Technologies revenue of $266 million grew 9%, with strong performance in international markets and balanced growth across our core platforms in the EMT, spine and cranial markets. We were pleased to announce our intent to acquire Salient Surgical and PEAK Surgical in July. These strategic acquisitions are expected to leverage our existing strength in Surgical Technologies, as well as access substantial adjacent therapy opportunities. Integration planning is underway and on schedule and we expect to close these acquisitions in Q2.

Now turning to the rest of the income statement. The gross margin was 75.2%. The gross margin was negatively affected this quarter by 30 basis points from 3 nonrecurring items, including a scrap charge related to our manufacturing issue at our facility producing Resolute Integrity. It is worth noting that while we have resolved the Resolute Integrity production issue, we are still ramping up inventory to supply the resulting back order in the European market. We continue to believe our gross margin for the remainder of the fiscal year should be in the range of 75% to 75.5% on an operational basis, as we continue to offset pricing pressure through our $1 billion cost of goods sold reduction program.

First quarter R&D spending of $371 million was 9.2% of revenue. We remain committed to invest in new technologies to drive future growth and continue to expect R&D spending in the range of 9% to 9.5%.

First quarter SG&A expenditures of $1,408,000,000 represented 34.8% of sales, a 60 basis point improvement from the first quarter last year. We continue to focus on several initiatives to leverage our expenses while at the same time investing in new product launches and adding to our sales force in faster growing businesses and geographies. In FY '12, we expect SG&A spending to be in the range of 33.5% to 34%.

In an effort to improve disclosure to investors, we are breaking out the noncash amortization expense as a separate line item from net other expense on our income statement this quarter and going forward. Amortization expense for the quarter was $88 million compared to $82 million in the first quarter of last year. For FY '12, we would expect amortization expense in the range of $80 million to $85 million per quarter.

Net other expense for the quarter was $109 million compared to $35 million in income in the prior year. The year-over-year increase in expense is primarily a result of the losses from our hedging programs, which were $64 million during the quarter compared to $54 million in gains in the comparable period last year. As you know, we hedged much of our operating results to reduce volatility in our earnings. However, the FX impact was more negative than we had expected since the currencies we do not hedge were very volatile, especially the strengthening Swiss franc. We estimate that this reduced our results by about $0.01 from what we had originally expected.

Net other expense this quarter also includes $29 million in expense from the Puerto Rico excise tax, which is almost entirely offset by a corresponding tax benefit I will discuss in a moment.

Looking ahead, based on current FX rates, we anticipate Q2 net other expense will be in the range of $125 million to $145 million, including hedging losses in the range of $70 million to $80 million. For FY '12, we expect net other expense will be in the range of $460 million to $520 million, which includes hedging losses in the range of $250 million to $300 million based on current exchange rates.

Net interest expense for the quarter was $32 million compared to $74 million in the prior year period. Excluding the $21 million noncash charge for convertible debt interest expense, non-GAAP net interest expense was $11 million. At the end of Q1, we had approximately $9.2 billion of cash and cash investments and $10 billion of debt.

Let's now turn to our tax rate. Our effective tax rate in the first quarter was 19.7%. Excluding the impact of onetime charges, our adjusted non-GAAP nominal tax rate in Q1 was 20%. Included in this rate is the $24 million tax benefit associated with the U.S. foreign tax credit from the Puerto Rico excise tax, which -- was mostly offsets the charge recorded in other expense. For FY '12, we expect an adjusted non-GAAP nominal tax rate in the range of 19% to 19.5%, which includes the tax credit associated with the Puerto Rico excise tax and assumes the R&D tax credit will be extended beyond December 31.

In Q1, we generated $1 billion of free cash flow, defined as operating free cash flow minus capital expenditures. We expect to generate $4 billion in free cash flow on FY '12 and remain committed to returning 40% to 50% of our free cash flow to shareholders. During Q1, we repurchased $400 million of our common stock. In June, our Board of Directors increased our share repurchase plan authorization by an additional 75 million shares. As of the end of Q1, we had a remaining authorization to repurchase approximately 86 million shares.

First quarter weighted average shares outstanding on a diluted basis were 1,070,000,000 shares. In June, our Board of Directors also increased our cash dividend for FY '12 by 8%, which now equates to an annual dividend of $0.97 per share. As of yesterday's close, our dividend yield was over 3%. Our dividend has more than doubled over the past 5 years, and this is our 34th consecutive year of increased dividend payments.

Let me conclude by commenting on our fiscal year 2012 revenue outlook and earnings per share guidance. We believe that constant currency revenue growth of 1% to 3% continues to be reasonable for FY '12. While we cannot predict the impact of currency movements, to give you a sense of the FX impact if exchange rates were to remain similar to yesterday for the remainder of the fiscal year, then our FY '12 revenue would be possibly affected by approximately $500 million to $540 million, including a positive $140 million to $160 million impact in Q2. Our FY '12 revenue outlook now assumes our CRDM and Spinal businesses continue to decline in the low-single digits on a constant-currency basis. Our outlook continues to assume the rest of our businesses continue to grow in the mid to high-single digits on a constant-currency basis.

Turning to guidance on the bottom line. Based on the expected constant-currency revenue growth of 1% to 3%, we believe it is reasonable to continue to expect earnings per share in the range of $3.43 to $3.50, which includes approximately $0.04 to $0.06 of dilution from the Ardian acquisition. After adjusting for the Ardian dilution and the $0.10 of onetime tax benefits we received in FY '11, our guidance implies FY '12 earnings per share growth of 6% to 9%.

As in the past, my comments on guidance do not include any unusual charges or gains that might occur during the fiscal year, nor do they include the impact of a noncash charge for convertible debt interest expense.

With that, Omar and I would now like to open up the phone lines for Q&A. In the interest of getting to as many questions as possible, we respectively request that each caller limit themselves to only 1 question and only 1 follow-up. Operator, first question please.

Question-and-Answer Session

Operator

And your next question comes from the line of Matthew Dodds.

Matthew Dodds - Citigroup Inc

So Omar, I know you're going to get a lot of questions on the key themes, so I hope you're ready for this. I'm going to hit ones again. I know there's going to a lot of them. If you look at globalization, when we've looked in the past, the kind of the percent of medtech that's in emerging markets, it's between 8% and 10%. So Medtronic's at 10%, and I think the plan was over 5 years getting that number or closer to 20%. Given your experience in emerging markets, is that possibly a low number? I mean can you accelerate the investment to make that even a bigger piece? Where do you kind of think about that 5-year plan?

Omar Ishrak

Right now, we're planning around that region, but it's my every expectation that I want to accelerate that. Absolutely. I think it's possible by doing all the things that I said because at this stage, we don't have any significant R&D presence. Our customer touch at the broad level is limited, and there's lots of things that we can do that, in fact, has been done in other industries that, in other areas of healthcare that we can do in Medtronic in a more accelerated fashion. And we intend to do that, so this is a matter of making some bold investments early. Some strategic partnerships, perhaps, but we have a very clear view about this, and we're not going to hesitate.

Matthew Dodds - Citigroup Inc

And I know, Omar, on SG&A, you didn't change the guidance. But should we assume maybe there's a little more of a mix shift towards emerging markets for fiscal '12?

Omar Ishrak

Almost certainly, almost certainly. And remember, in emerging markets, the costs are lower, so we expect some leverage out of that. And in fact, I think one of the main things we'll see is that the R&D spending back to the productivity, this is outside of what I talked about, but which I found in my past experience that as you invest in emerging markets R&D and that expertise, over time gets up to speed, the productivity, in fact, is also enhanced because the costs are lower.

Matthew Dodds - Citigroup Inc

And then one quick one for Gary. Gary, on Europe, even if you back out the lost Greece sales, it was down sequentially. Is that the southern regions just showing sluggish growth versus the last quarter?

Gary Ellis

Matt, overall, it wasn't as much the -- even I would say that in the major markets, it was more of the Eastern European. We had the Greece issue of the deferred revenue where we made a decision because of what's going on in Greece to defer revenue until we have some certainty around collectability. But even, like in Czech Republic, in some of the other Eastern European countries, we saw a little bit of a slow down this quarter. And so it was kind of across the board, but I would say mostly in the Eastern European. If we adjust for where we saw some of this in the Eastern European, our growth rate was more around the 5%, which is kind of what we've been running up until this quarter. So we think it was just a little bit more of an unusual thing in those, some of those market places. We don't see any basic big trend downward even in the Southern European countries.

Operator

And your next question comes from the line of Mike Weinstein with JPMorgan.

Michael Weinstein - JP Morgan Chase & Co

Omar, let's start at the top level. You talked really about 3 themes, which were globalization, innovation and execution. I think everybody [indiscernible] in your review of given the differences and the maturity of your various businesses and the growth outlook for your various businesses, how you view the current portfolio at Medtronic? And what needs to be done to the portfolio to position Medtronic for improved returns going forward?

Omar Ishrak

First, I think I like what we have. I think we've got good diversification, a good mix of businesses in different state of evolution. And so I think we can work with what we have right now. And then I think we need to optimize this further using all the methods that I talked about, improving globalization, also taking each of our products within the portfolio and really challenging the penetration equation, looking at that in a very segmented fashion, a very granular fashion by country and making sure we've really optimized that. And it's not just -- people say that to go to emerging markets, penetration always price. In fact, that isn't the case. And there's many other barriers, and we've got to understand those carefully and address them more in time. So that's one piece of it. In terms of expansion, look, we'll always look at our mix of portfolios. But as I mentioned, we're going to look both upstream and downstream at our mix of product lines. And from existing therapy, looking towards diagnostics and seeing what we have to do to improve patient selection, we'll either do partnerships or we'll come up with some kind of business model that helps us create, to give us some competitive advantage in that area. And looking downstream as well, looking at patient monitoring, which we call connected care, and making sure that we leverage the asset, which is essentially the implant that we have in a patient through the life of the patient as opposed to simply during the therapy -- during the implant procedure, it is something we're also going to look at. So those are areas of extension we might look at. The other thing I'll add is that teams are executing. Like I mentioned, we intend to enhance those and there's lots of opportunities there. And PEAK and Salient are good examples. There's a team in Surgical Technologies, which is executing. There's an adjacency where we've got low share, whereby acquiring these companies, we get our technology platform. And by using our scale in that local area, in that local market, we think we can expand rapidly.

Gary Ellis

And Mike, just to add to what Omar said, I mean as you know, we, as a company, continue looking at the portfolio. And as Omar said, we're comfortable with where the portfolio is now although we have made the decision as we continue to announce that Physio-Control, we are looking to divest. So that'll continue to be a part of our process, to continue to look at the portfolio in general. But right now, I think from our perspective, we -- other than Physio, we feel we have the right mix of business as Omar said. And we're going to continue to focus on driving growth in those businesses.

Michael Weinstein - JP Morgan Chase & Co

And if I can follow-up, Gary, just one quick one on what you said, which is are you any closer to knowing whether Physio is going to be a spin or a sale? And then Omar, you talked a lot about, what I think most of us would view it as being kind of broad business discussion on things we'd like to be better at. But when you translate that to financial goals for the company, is it all about growth? Is that your primary objective? Or do you have other objectives relative to return on invested capital or other metrics that we should be focused on as well?

Omar Ishrak

I think the primary driver right now is growth because when I look at all my financial metrics, that's the one that sticks out. If this company was growing even in the mid-single digits, it would be a totally different equation. So everywhere else, obviously there's room for improvement everywhere and optimization, and we won't ignore that. And given where we are with growth, we obviously will take a good look at our expense line all the time, and we're very careful with that. But we've got -- we think that there's an opportunity for growth, and we're going to hit that. And if we hit that, that transforms this company. And so that in the end is my single business priority.

Gary Ellis

And Mike, just to address the Physio- Control, we're going forward towards the process of going down the dual track of looking at whether it's both a sale or spin. There's been a lot of interest in Physio from the standpoint of a sale, so we're in the middle of that process right now. And what we can see, kind of where the results are, what we end up doing ultimately with the business, but right now, we're still kind of in the middle of the process.

Operator

Your next question comes from the line of Kristen Stewart with Deutsche Bank.

Kristen Stewart - Deutsche Bank AG

I was just wondering, Omar, if you could just address some of your commentary a little more deeply around R&D. You talked about clearly not having the level of productivity that you would like to see within that business or within the portfolio. So what are some of the things that we should look at to best be able to tell what progress you're making on R&D productivity? Should we see any sort of major restructuring initiatives announced? And just more broadly on the cost structure, is there anything else that we can see beyond the restructuring efforts announced earlier this year?

Omar Ishrak

No, if you want to look at our measure of our R&D productivity, look at our growth rates. It's really a simple as that. That's the way I'm going to measure it. I think the amount we're spending is a reasonable amount right now, given the sorts of technologies we have got to invest in, given the opportunity that lies in front of us, it's a reasonable amount of money we're spending. But we're not getting the returns that this kind of spending deserves. And so that's why we came down to the point that what we're working on in many ways aren't optimized to deliver growth, and we've got to work that. And so my single measurement, my single most important measurement in R&D productivity, is the growth that we'll get for the monies that we're spending. It's really very straightforward, and we've got to accomplish that by selecting the right programs and delivering them with good execution. So it's very simple, Kristen. This is not going to be too complicated. We're going to make sure that people work in the right projects. Those projects deliver the growth of the will and the will is to have the right economic value to our customers and if that occurs, we'll get growth. And once you have growth, then the productivity will seem fine.

Kristen Stewart - Deutsche Bank AG

Okay. And then just more broadly on the cost structure, any changes that we can expect to adjust the distribution model, particularly in United States?

Omar Ishrak

Again, we're always looking at it, and I realize coming -- looking at this with some fresh eyes, it does seem that the distribution model is expensive, but necessary. The people that we have out there actually perform functions, which physicians depend on and the whole health care delivery infrastructure depends on it. So we can't just break that arbitrarily. Now within that, we're going to look at efficiencies always, especially in the challenged market environment. We cannot afford to be sloppy about this, or in some way, inefficient. So we're going to look at efficiencies, we're going to look at management players and then such things, but we're not going to disturb. I respect very much that the delivery model that we have today depends on certain individuals and skills. And we, in fact, have a competitive advantage because we have the mind share of a lot of the physicians because the loyalty that we’ve built up with them, I'm not going to break that. So that's pretty critical for us. So there's going to be more around the overall efficiency to which we deliver rather than the front-line people themselves because I think they perform a critical task in the whole healthcare delivery process.

Gary Ellis

Just to add to that comment, one of the things that Omar mentioned in his comments was back to the kind of continuum of care on the monitoring, the patient monitoring and on the kind of downstream from our products. One of the other benefits that we get out of that obviously focusing on that monitoring capability is that, hopefully, will actually help to reduce our service burden, back to Omar's point, making it more efficient. I mean we know we need to do that as far as the follow-up, and that's necessary for our physicians. But is there a way we can do it more effectively and efficiently? And we think the whole concept of connecting care and patient monitoring, clearly, will enable us to provide that service, and obviously, a much less expensive cost than what we do currently.

Operator

Your next question comes from the line of David Lewis with Morgan Stanley.

David Lewis - Morgan Stanley

Omar, just thinking about some of your comments here, it sounds like you are comfortable with $1.5 billion or so on R&D, but you'd like to see that efficiency improve. [indiscernible] is supportive of tuck-in transactions and you look at the last several years at Medtronic, your tuck-in transactions just in the last few years have been in excess of $3 billion. So I guess if you're comfortable with the $1.5 billion, you want to see more efficiency. Are you also comfortable with how Medtronic has deployed capital externally? And do you think there's enough rigor associated with how the company's deploying that capital with these "tuck-in transactions"?

Omar Ishrak

No, I think they're -- in fact, we've improved the rigor. I think in broad terms, I think I can understand the reason for that. But I'm going to be a lot more strict, if you like, or selective about the teams, our internal teams that get these tuck-in acquisitions. Because I want teams that are executing, and I can -- and I see an immediate value, financial value proposition, which is clear and direct that we can deliver on. So you'll see more in the way of leveraging teams that are executing in close adjacencies. We're providing them with some technology or a little extra expertise in some way enables them to get rapid growth. So I think that's the way in which I'm going to look at tuck-ins rather than someone's behind somewhere and they kind of try to fix their problems or buying somebody and then there's a long technology cycle around. I mean we'll selectively do some of that too, but I think the major priority will be -- I mean the 2 rules that I have around this is: one is I'm going to see a very clear value proposition. That means I want to see -- I don't know when the return will occur and what needs to happen to get that return. So good synergy plan. And second, a team that's got a track record of delivering. So I can trust them to produce the results that we just talked about, so a lot more rigor around that.

Gary Ellis

And David, just to kind of add to what Omar said. So I think one of the things I can tell you he has challenged the organization even as we went to like the Salient and PEAK acquisitions was a lot more rigor around the focus on it. But I would -- so it's more of almost a balanced view of what we're trying to do. As you know, a lot of our tuck-ins over the last few years have been more early-staged development companies that are a little bit farther out as far as their potential big opportunities, but much farther out, and so dilutive for a few more years. I think Omar is clearly challenged us appropriately to say that we need to have a balanced view of this. What are the things that can deliver for us now or in the near term? And obviously, that's some of the advantages like with the Salient and PEAK. These are 2 companies that the revenue is there, the products are there, and they're continuing to execute right now. And so I think that's what you're going to see a little bit more as maybe a little bit more of a balanced view, but -- and I can honestly tell you going through the Salient and PEAK acquisitions with Omar in more rigor.

David Lewis - Morgan Stanley

Just a quick follow-up. Just in terms of other expense, obviously reduced that number fairly materially this particular quarter. I'm sure there's some offsets in the middle of the income statement. Do you have any sense of the net impacts in your mind or the reduction on operating expense given some of the offsets?

Gary Ellis

I guess I'm not quite understanding -- what's your -- I'm missing the question, David?

David Lewis - Morgan Stanley

Other expense guidance, Gary?

Gary Ellis

Yes. Well as we indicated in the -- I think where the piece that you're probably missing is, we did break out the amortization of intangibles, the noncash charge and the P&L for the first time this quarter as we indicated in the commentary. So those 2 line items, the amortization and the non-op would be what we've normally would have together. And so that if you would go back and look at our guidance previously, you would have to collapse, both the guidance and both those 2 line items.

David Lewis - Morgan Stanley

Okay. So you're basically just pulling out the amortization for the remainder of the year?

Gary Ellis

Right. Yes, what we've heard from several investors is that noncash charge would be in rest and know exactly what that amount was. And so we broke that out in the P&L, so people can see what that amortization of the intangibles is. Before that would have been combined in the nonoperating expense line.

Operator

Your next question comes from the line of Bob Hopkins with Bank of America.

Robert Hopkins - Lehman Brothers

It's interesting to hear you clearly emphasize growth as a top priority. And I'm wondering what that means for capital allocation as a priority. Does that mean that going forward, say, a higher dividend is a lot less likely given your focus on growth? Does that mean that going forward, that the capital allocation thought process that Medtronic has laid out -- that has spelled out previously might change going forward?

Omar Ishrak

No, I think the capital allocation strategy that we have right now seems completely appropriate. And I'm committed to the dividend strategy that we've been following. I think that's also completely reasonable. All I'm saying is that the capital that we're already investing into driving organic growth and to some degree, inorganic growth, that we're already allocated is not resulting in the types of growth that one would expect, that anyone would expect. And I think we've got to fix that, and I think that's enough. And I think if we can get our fair share of growth out of the money that we are already investing, we can certainly protect the current capital allocation towards dividends and so on. There's no question about that. Am I clear about that?

Robert Hopkins - Lehman Brothers

Okay, yes -- no, that's very clear. I also want to ask you a question about spine because you focused on growth. Spine obviously isn't growing, so 2 quick things on spine. One, given what you're seeing right now and what you're hearing from the field, how confident are you that INFUSE won't have a negative impact on your core spine metal business going forward? And then longer term, it's interesting you guys are obviously the biggest player in spine, and yet, other companies like your competitors at J&J have articulated the strategy where they think they need to be big cross every orthopedic vertical because you're going to see more bundling going forward, more vendor consolidation going forward, more hospitals contracting across all areas of orthopedics. So I'm wondering your initial thoughts on spine, again given that it isn't growing, how you feel about INFUSE and the potential for it to impact metal and then just your strategy versus, say, J&J which are obviously different?

Omar Ishrak

I think -- look, there's a short-term impact clearly. And we can't -- going to hide behind that. I mean there clearly is one. And over time, we'll do the right things with INFUSE and we hope to, in the end, make it a growth business because I think it's got lots of value associated with it. But we're going to do that the right way and make sure that people understand their true facts. And so we're committed to that in the long term. Now in terms of broadening that business, fine, I mean that's not a bad long-term philosophy, but I need to see the team execute. I need to make sure that we execute with what we have and understand that market, which is a very complicated market with all kinds of ramifications around conflict of interest, physician collaboration, how we go to market, how we even do innovation. And we need to make sure that we are grounded in all of those areas in a good rigorous process, which follows our basic principles of integrity and patient safety and so on. And we could have just ground that properly before we think of expanding it into other areas. And then it's really as simple as that, we just walk before we run here. So have what we have and stabilize it first?

Robert Hopkins - Lehman Brothers

That makes sense. It's more a question really of how you see the world developing longer term in terms of hospitals pushing more to bundle. But then finally, I just maybe could add one another quick comment on that. And then finally just from a housekeeping perspective, at what point do you think you'll be able to communicate your thoughts on what the changes you plan on implementing meaning from Medtronic's long-term top and bottom line growth rates? Is that something that we can expect from you by the beginning of calendar '12 or is it something that we need to wait a full fiscal year end for -- or just initial thoughts on when you might communicate more specifically on how all these changes might turn out right into growth objectives?

Omar Ishrak

Well first, let me just complete the answer on this client thing. In terms of bundling and total solutions and so on, our focus right now around that is actually surround the spine surgeon with other technologies that we already have. So it's not that we're isolated in that space. We're going to use our Surgical Technologies business. We want to use our navigation business, which is a part of that and our spine implant business and collectively, we think -- actually we have a better solution for the customer, which is in many ways more efficient and provides direct economic value that the hospital buyer, in fact, will be sensitive to or responsive to. So I think that's the approach we're taking towards total customer solutions and using what we have, deliver true value with that and make that process work well. When all of that works well, sure, we'll think about expansion. But right now, this is our focus. Now in terms of future updates, look, we're going to give periodic updates. And I think early in the year, we'll have a more detailed look at our strategies. We'll see how some of these things, which we are now formulating roll out and I get some initial feedback as to what kind of success they're having, and then we can be more accurate in our projections. And we'll have an Analyst Meeting next year as well, so there'll be plenty of opportunity in which we can give more details in our outlook.

Gary Ellis

Just to add to what Omar said, we're in the middle of kind of our strategic planning process right now. And I think it's obviously appropriate for Omar to go through that, get a sense for all the businesses and the strategies and where things are at. As he indicated, later on, this fiscal year, you'll have other opportunities to meet with investors and we'll start looking forward to figure out when we'll schedule another analyst meeting. But we'll obviously have more updates at that point in time, Bob, but we need to work kind of through the strategic plan process first.

Operator

Your next question comes from the line of Joanne Wuensch with BMO Capital Markets.

Joanne Wuensch - BMO Capital Markets U.S.

I have 2. One, Gary, can you quantify what the acquisition revenue was for the quarter? And then second of all, Omar, you said something really interesting to me, which was that your operating performance was unsatisfactory in the quarter. There've been a number of realignments that Medtronic has put in over the last couple of years. Could you sort of address how you would make it satisfactory?

Gary Ellis

Well I think overall, I mean the acquisition, the only 2 acquisitions that are in the quarter are ATS and Osteotech that are in there. And they're both, as we said in the commentary, the numbers were right around $20 million for each one of those as far as the impact on the quarter related to acquisitions.

Omar Ishrak

I think, look, in terms of performance, I was simply commenting on the facts. We had -- for the revenue that we received, our expectation was to have some level of EPS growth, which we didn't achieve for a number of reasons. Things like our scrap performance, surprises like that shouldn't happen. Our gross margin was below what we expected it to be because of nonrecurring items. I mean these things are not satisfactory. And so these are pretty basic in terms of just operating rigor, being proactive about identifying problems and finding offsets for them early in the quarter and making sure we deliver what we say we're going to deliver to ourselves. And that's really where I was coming from on that. In terms of alignment, we've recently announced a realignment around global lines, but that really is more of a long-term outlook. But in addition, I've laid out systematic operating mechanisms to which we'll drive some of this rigor. And through that over time, I expect our business step-by-step will get better, more predictable and more sustained business performance. So it was -- my comment was simply relating to the facts around a flat EPS with 7% top line growth. So that's not the kind of business we want to be.

Joanne Wuensch - BMO Capital Markets U.S.

But based on what you've seen, you still believe there's leverage in this model?

Omar Ishrak

Yes, there is leverage -- I mean there are things that we can do, so...

Gary Ellis

Right. And Joanne, just to add, I mean obviously, as we indicated, a lot of the benefit of the restructuring for the things that we've even done, we didn't get all that benefit in Q1 because those people were still around. The more important -- the bigger part of that benefit will start -- actually hitting us in Q2. And as we indicated, we're going to continue to focus on trying to drive operating leverage throughout the organization. And we don't accept the fact that earnings per share grew slower than revenue. That's not acceptable, and it's not in line with our full year expectations for the year either. So we clearly -- we're not happy with, as Omar said, where we ended in Q1. And we have every expectation that'll improve as we go through the year.

Operator

Your next question comes from the line of David Roman with Goldman Sachs.

David Roman - Goldman Sachs Group Inc.

Omar, tell me you could expand a little bit more in your comments regarding R&D spending. Other companies in medtech have started to talk a little about the requirement or strategy to realign R&D spending to focus more on economic value, which to 1 company involves a several hundred basis point increase in R&D spending. Can we maybe talk about some of the costs that might be associated with some of the longer-term initiatives that you introduced this morning?

Omar Ishrak

No, I think the cost actually is, in that area, is not going to be in R&D spending. In fact, we'll get more productivity because I think the products that we'll work on will be more compelling and more obvious, the value of those will be more obvious to our customers. So the productivity of R&D will go well. I think the spending, if any, in that area will be more around evidence generation, but I think it's more for realignment. I think we're already have people and resources. And in fact, one of the things that I was really impressed with, with Medtronic was the quality of the resource that we have who understand healthcare economics, as well as clinical value creation. I think we need to realign those resources in a much more focused fashion, laser-sharp focus fashion on creating economic value directly for our customers in a very systematic way and a very broad way and consistent way for every program that we do where there's incremental innovation or big innovation. So I think it's more for realignment of resources. I don't see extra cost being generated. In fact, I see more productivity because I think what we work on will translate to sales much more quickly as a result of this.

David Roman - Goldman Sachs Group Inc.

Okay. And then maybe, I think there've been a couple of questions regarding bundling. But maybe give us your perspective on what opportunities exist for Medtronic to leverage its diversified model in the hospital systems? It's something that your predecessor and others have talked about quite a bit, but we haven't seen any real benefit in top line growth from the size and scale that Medtronic has to offer. Can you maybe talk about how that might evolve over the next sort of several months and what initiatives you might undertake to start to generate better leverage in the footprint that you do have given the extent to which we know how hospitals are looking to consolidate vendors?

Omar Ishrak

Yes, I've got a very specific thinking around that. In the sense that I look more around our specific customers and this includes physician customers, as well as our administrative customer. The physician customer in the sense that actually we have -- when I mean our diversification, I don't mean every business with every business. I mean adjacent businesses. For example, in our spine business where we can use Surgical Technologies and the implant together to the spinal surgeon -- this is not administrative, this is spinal surgeon, and use our diversification there in the sense that we've got surgical tools, as well as the implants in one business, which our competitors don't, to use that as competitive advantage for us to provide a better value for our customers. So that's 1 form of bundling using adjacent product lines. The equivalent examples in our CardioVascular line where we may use technologies from one of our businesses and migrate it to another business and therefore, form a better product for that 1 customer. So it's really the diversification, I think, has value when we focus on specific customers. Now to the overall administrative customer, sure there's value as well. But in my mind, actually in many ways, other than say to the cardiac line manager, which is sort of a hybrid between a complete administrator and the physician customer, those are more limited. I'm really looking at customer value in terms of clinical utility, which will then translate to true economic value as opposed to, look, I've got this whole bunch of stuff and I'm one company. That's not where I'm coming from. The overall breadth of Medtronic, end-to-end, the value there in terms of size and scale is really more focused around manufacturing and our distribution footprint in terms of logistics and so on. But in terms of true customer value, it's really surrounding a physician with our technologies and looking at local adjacencies between our businesses as opposed to end-to-end between every business and every other.

Operator

Your next question comes from the line of Larry Biegelsen with Wells Fargo.

Larry Biegelsen - Wells Fargo Securities, LLC

One clarification, if I may. Earlier, I think Bob Hopkins asked about the impact of INFUSE on Core Metal Constructs. And I think Omar, you gave a response regarding INFUSE about it having a short-term impact. I just wanted to make sure you're saying that you were responding to the impact of INFUSE on Core Metal Construct business.

Omar Ishrak

Yes, I think that's the short term.

Gary Ellis

Yes, I mean -- Larry, this is Gary, too. I mean obviously it's hard to say exactly the impact is. We know what INFUSE -- since the article as we indicated was down mid-teens. We didn't see clearly obviously -- on the core constructs, we didn't see unnecessary drop-off dramatically from where we had been all quarter. It tracked relatively well. But we think there clearly is some carryover impact on the Core Metal Constructs. Although we think that'll come back probably even faster than the INFUSE because the reality of the Core Metal Constructs that we have other products that they can use other than INFUSE. And so we think that'll -- we don't think it'll have the a long-term impact on the business as much as the INFUSE piece. And again, on our assumptions right now, we assume INFUSE will continue to be under pressure until some of this data gets out there from our other clinical trials and the yield study we talked about. So we're comfortable that on the Core Metal Constructs that there was probably some impact. To try to measure it is very, very difficult.

Omar Ishrak

I think it's just a distraction factor.

Larry Biegelsen - Wells Fargo Securities, LLC

Omar, just 2 strategic -- sorry to interrupt. Omar, can you give us a sense of how long it will take for investors to notice the changes that you plan to make in terms of enhancing growth first? And second, you talked about having the right products at the right price to be successful in emerging market. Does that mean we might see more acquisition activity in some of these local markets or are you planning to develop these products internally?

Omar Ishrak

First, I want to be clear, it's not just a matter of right products, the right price. I mean that's a factor. But I think for growth in emerging markets, you need more than that. You need to truly understand the barriers to adoption and also what the true needs in that market are. And so sometimes, the barriers to adoption are a matter of creating the right healthcare infrastructure or the right business model in terms of patient selection and so on, or even training of physicians. So there's a lot of other factors there, and we will invest in those areas. So -- and some level of acquisition activity is probably going to be necessary because, to gain critical mass quickly in some of the series, we simply can't higher quickly enough. However, I do want to emphasize that I think one of our biggest advantages is, in fact, that we've got core technologies, which local players in those countries don't. And we intend to leverage that. And we have to migrate aspects of this core technology dedicated for use in these emerging markets. And we're going to create local centers for which we do that. And to accelerate those platforms, we might do some acquisitions. In other places, we'll do it organically, so we'll be opportunistic about it. But I just want to make it clear that a global R&D platform is a very key element in our strategy for emerging markets.

Gary Ellis

I think we need to -- we were going to stop with questions at that point. So maybe we'll just -- Omar will close with some comments.

Omar Ishrak

I just want to close out here. And just to reiterate one more time my top priority, which is to align the management team around our single goal of improving growth. And I think you've all kind of received that message from the tone of questions that I've heard. And to do this again, the 3 key imperatives that I'm focused on: improving execution, optimizing innovation and accelerating globalization. And look, there's a lot of work ahead of us. I don't minimize that for 1 minute, and I still have a lot to learn. But I do believe that Medtronic has a number of strengths from which to build. And we'll give you updates, and I expect our performance to increase to improve incrementally quarter-after-quarter. And we'll give you periodic updates on that. But I truly am excited to be here, and I'm extremely optimistic about what the future holds for this company.

And with that and on behalf of this entire management team, I'd like to thank you, all, again for your continued support and interest in Medtronic. And I look forward to updating you on our progress in our Q2 call in November. So thank you very much.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

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