Medtronic's H1 freefall slows to a stop with flat revenues in Q3, lifting its final forecasts

After a tougher-than-expected start to its fiscal year, Medtronic is finally getting back on track.

The first two quarters of the company’s fiscal year—which began April 30—brought with them sinking revenues, despite Medtronic’s early predictions that its earnings for the year would easily surpass 2022’s total. But that downward trend has all but ground to a halt, as the devicemaker this week reported third-quarter revenues that stayed almost completely flat compared to the same period a year prior.

The quarterly total came out to $7.727 billion, according to Tuesday’s earnings report (PDF). That’s less than half a percent lower than the $7.763 billion Medtronic reported in the third quarter of its fiscal 2022.

The comparison looks even better on an organic basis, which excludes a $379 million hit from year-over-year differences in exchange rate and the $26 million that Medtronic gained during the quarter from its recent acquisition of Intersect ENT. Under those terms, organic revenues climbed more than 4%.

The company’s slower-than-expected growth is largely due to lingering impacts of the COVID-19 pandemic. On one hand, waning hospitalizations for the virus have sent the once sky-high demand for Medtronic’s ventilators plummeting; on the other, rising case counts in China, in particular, have slowed the rates of non-COVID-related procedures using Medtronic’s other devices in the region.

The reduced reliance on its (soon to be spun-out) ventilator portfolio dealt a heavy blow to the medtech giant’s medical surgical business, which saw its revenues drop 7% as reported and 2% on an organic basis.

The diabetes department, meanwhile, saw an impressive international increase—including “mid-thirties growth” of its continuous glucose monitoring products, according to the report—but fell short in the U.S., where its revenues declined in the mid-teens thanks to the lack of any new product approvals during the quarter. In total, the diabetes business’ revenues dropped 2% as reported, but increased 3% organically.

All of that placed the onus on Medtronic’s two remaining segments—its cardiovascular and neuroscience businesses—to edge around those obstacles and turn around the company’s revenues. They delivered: Both reported organic revenue growth of 7% for the quarter; on an as-reported basis, the cardiovascular business posted a 1% increase and the neurovascular department grew by 5%.

With its revenues slowly but surely edging their way back into the black just in time for the fiscal year to wrap up, Medtronic has ramped up its financial forecasts. It’s now expecting to see organic revenues rise between 4.5% and 5% in the fourth quarter of the year, which would in turn drive up the year’s overall growth rate.

That marks a slight U-turn from the rest of the year. Medtronic kicked off its fiscal 2023 with the assumption that annual organic revenues would grow between 4% and 5%. But after clocking a 3.6% decrease in the first quarter and only a 2.2% increase in the second, it pared down that prediction to include growth of between 3.5% and 4% for the second half of the year—which was promptly outdone by the third-quarter’s 4.1% jump in organic revenues.

Even if the fourth quarter registers growth in line with its renewed forecasts, Medtronic may end up reporting a total year-over-year increase of just around 2%, well below its original predictions for 2023.