Medtronic ($MDT) executives said they are in the process of deciding what to do with the $9.3 billion in repatriated cash following an internal reorganization enabled by the tax inversion takeover of Covidien for $50 billion.
They didn't give too many details, but said they will likely use the money for share repurchases and debt repayment. Chief Financial Officer Gary Lee Ellis said the company is committed to returning at least 50% of free cash flow to investors via dividends and share buybacks.
In addition, the company took on more debt than anticipated from the takeover of Covidien due to Treasury Department rules designed to deter inversion deals. But the rules didn't stop the now-Ireland-based Medtronic from saving $3 billion in taxes by repatriating $9.8 billion to the U.S. under a 5% tax rate for inverted companies instead of the standard 35%, though the medical device excise tax is expected to cost the company $210 million during fiscal year 2016.
The company said more details about the cash deployment strategy are forthcoming. Medtronic now has about $17.2 billion in cash and investments and $35.8 billion in debt, Ellis said. It continues to project about $300 million to $350 million of "targeted value capture" synergies from the Covidien deal.
Another fruit of the Covidien deal was the Solitaire stent retriever to treat stroke. The device has become more valuable since several groundbreaking studies showed that it, along with one made by competitor Stryker ($SYK), improves the outcomes of drug therapy alone. Ongoing adoption of the device helped propel neurovascular revenues up 32% to $143 million. Strong sales of the flow diversion Pipeline Flex device to treat intracranial aneurysms also helped.
The company made two neurovascular deals during the quarter, acquiring Lazarus Effect to get its hands on technology that can be used to improve the Solitaire, and Medina Medical, maker of aneurysm and embolization mesh technology to treat hemorrhagic stroke.
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| MiniMed 640G insulin pump with built-in continuous glucose monitoring--Courtesy of Medtronic |
Diabetes group revenue rose 11% on a constant currency basis (5% as reported) to $450 million, due to strong Europe and Asia Pacific sales of the MiniMed 640G insulin pump, which is scheduled for submission to the FDA in early 2016. In addition, the group just announced a distribution agreement with Henry Schein ($HSIC), which the company says the potential to dramatically increase penetration of the of the iPro2 continuous glucose monitor in the U.S. at the primary care physician level.
Meanwhile, the cardiac and vascular group saw its revenues increase to $2.48 billion, or 8% on a constant currency basis (9% as reported). Sales of transcatheter heart valves like CoreValve Evolut R TAVR increased more than 30%, including increases of more than 50% in the U.S. The company continues to emphasize and benefit from the launch and adoption of implants deemed MRI safe by the regulatory authorities, according to comments made during the earnings call.
In a blow to the group, the Minneapolis StarTribune just reported that all units of the discontinued InSync III pacemaker have been recalled after several reports of power failure. Medtronic said it has a received a report of a patient death that may have been related to the problem.
The spine unit underperformed. Its $719 million in revenue was flat on a constant currency basis (down 4% as reported), while the drug pump business continues to struggle under an FDA consent decree for manufacturing violations.
- read the earnings release