Emerging markets are a priority for Medtronic CEO Omar Ishrak who has talked about how he expects the medical device company to garner 20 percent and higher growth in revenue from these markets that include China, India and Latin America.
But in the company’s first fiscal quarter ended July 27, Medtronic’s (NYSE:MDT) emerging market revenue increased only 14 percent to $438 million and accounted for 11 percent of the company’s overall revenue of $4.01 billion.
“Although this performance in emerging markets is respectable, I was disappointed in that it was below the 20 percent level that we have been targeting and expect to deliver consistently over the longer term,” Ishrak said in a conference call with analysts on Tuesday.
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Later in the same call, Matthew Dodd, a Citigroup analyst, questioned Ishrak about emerging market revenue and noted that the company has fallen short of the 20-plus percent growth in the last three quarters that Ishrak said he expected in previous comments. He asked whether the lower-than-expected performance in emerging markets is because of any market weakness or a failure in execution.
Certainly there have been many reports about economic slowdowns in China, India and Brazil, but Ishrak put the blame squarely on Medtronic’s inability to execute properly in those markets.
“I would actually say that it is more execution than anything else,” Ishrak responded. He added that it will take some time for the growth strategies to bear fruit. “I don’t think that it is the market itself. Healthcare demand is actually strong. China is still investing heavily in healthcare. … In places like Latin America and India, there is demand from the population. We don’t see that as the market itself.”
Ishrak reiterated that achieving a 20 percent growth in those markets is still a goal for fiscal 2013, which ends in late April.
Even though Medtronic posted disappointing results from emerging markets, overall the company showed improving performance and delivered a 2 percent increase in overall revenue to $4.01 billion from the same quarter a year ago. Ishrak noted that the U.S. implanted cardioverter defibrillator (ICD) market is stabilizing with Medtronic’s revenue falling at a lower pace than the overall domestic market. Medtronic also saw a 1 percent increase in its core spine segment and 2 percent globally, excluding the results from the Kyphon segment. Albeit, this is just one quarter, but if it continues, Medtronic will have reversed the trend in its core spine segment, an area that has been weak for some time.
