MDT
#Well, <UNK>, to your first comment about the earnings per share, the answer on constant currency would be yes, that's what we would expect to see in the back half of the year.
That's not ---+ if you look at the first half of the year, basically we've seen between 11% and 12% constant currency comparable growth overall.
And so, we expect that to accelerate a little bit in the back half of the year as we talked about, primarily because of more of the benefits of the Covidien integration, and all the integration efforts coming through.
And so, in total as related to the $850 million comment that we've committed to by FY18, we are right in line ---+ in fact maybe slightly ahead of our plans to deliver $300 million to $350 million in the current year, and right in line with the expectations on doing that for the full $850 million by FY18.
So we feel very confident about that.
We feel confident about that in our earnings per share guidance we're providing to the organization, or to the investors.
But in general, yes, that's right in line with our expectation.
But foreign exchange does continue to be a negative headwind for us, obviously, but on a comparable constant currency basis, we're seeing acceleration in our growth.
<UNK>.
<UNK>, on ---+ a good question.
I'd answer it, three parts to the answer.
One from a market perspective, one thing that's helped the cardiovascular space is the emergence of the cardiovascular service line globally, and we're seeing that, not to the same effect yet.
It's where ---+ I don't know,10 plus years behind as the neuro service lines, neuroscience service lines emerge, but we are definitely seeing that trend emerge.
And the more that happens, the more it plays to our hand, because we have by far the best breadth to cover those neuroscience service lines.
So that's one, and that is a tailwind for us.
The second is our internal capabilities of taking ---+ and this is different than actually cardiovascular.
We have implants that work with intra-operative imaging and navigation, and we have both platforms, and that gives us some flexibility.
Now we have to integrate those better, and take them to market, selling benefits versus features, and we're working on that.
But that's another tailwind.
And the intra-operative imaging and navigation is a key driver to us getting this network effect, so we can sell like I said, solutions versus features.
And then thirdly, which we're copying the play book from our cardiovascular group, is changing the way our operating principles and mechanisms, so that our businesses ---+ the silos come down to a certain extent, and they are incented to drive these cross-business unit deals where it makes sense.
So when you're bundling if you will, intra-operative navigation and intra-operative imaging navigation with some of our implants, you need to have the incentives and operating mechanisms and the analytics to do that.
And so, we're in the process of doing that.
So those three things are the things that are driving it.
But one thing gating it, is the neuroscience service line evolution in the marketplace.
Well, a number of things.
First of all, the new product growth includes the baseline product line, so that's inclusive of all of that.
So the only answer if you do the math, is that the emerging markets and service and solutions have to pick up.
Remember, service and solutions because of the integration together with Covidien, the baseline has changed.
So therefore, it's a 20 basis points where our number is like 40 to 60, so there's one aspect that will drag it down.
Those numbers are small, but in the context of what you're talking about, you're talking about the ranges of the upper end here.
So we're talking about 10s of basis points rather than 100s, so they do make a difference.
And then in emerging markets also, as we climb up into the range, it probably will help.
And outside of that, it's a matter of how much above the [$350 million] we actually get.
And again, like I've said before, we just want to be a little cautious, not so much because of our product launch activities, but because of the environment around us, which you just never know.
We just have to be a little cautious about macroeconomic pressures, political instabilities.
Those things or some health care rule changes, so we've ---+ given our past experience of these things surprising us, we're just going to be a little cautious.
And so, that's really the best way I can answer this, that I'd really like to see all three of our growth vectors above our projections, before we're really confident that we can extend the range, so that we get that level of diversification.
But in no way am I ---+ any sort of less confident about our new products execution, just because of the breadth of our pipeline.
I think that's going to happen.
I just think that macroeconomic circumstances, we just want to be a little cautious about that.
And therefore, I want to see the other growth vectors also climb to the same range, before we can get more bullish.
Well, with respect to the profit margin, I mean, you can't take our Q4 number and annualize that, because if you've looked historically, the same way that you had with Covidien that we just talked about as far as the tough comparison, our Q4, the profit margin is always much higher than the previous three quarters.
That's just historical, because we have a strong close, and so you have a lower rate.
So you can't annualize the fourth quarter.
But obviously, if we're in the 20%, 29% range for the full year that we've been talking about, then we would obviously continue to build on that number.
So that's kind of the ---+ take the average for the year, and then build on that from the standpoint of the incremental improvements that we would see from value capture going forward, is what you should assume.
But my only point is, just don't take the fourth quarter and annualize it, because it's an unusual ---+ it's by far ---+ the best profit operating margin tends to be in the fourth quarter, but we would obviously, could expect it to continue to improve.
The cash flow in the quarter, that $1.1 billion also includes some restructuring costs and charges and stuff like that.
So if we pull that out, you're probably closer to $1.3 billion.
And the point is, if you look historically at Medtronic and Covidien, the cash flow, also similar to the profits grows as you go through the year.
So it's always ---+ actually that $[1.2 billion] or $[1.3 billion] is kind of about 40% or 50%, versus where Medtronic Inc.
itself was a year ago in the quarter.
So it's ---+ we would expect still for the current year there, we're going to be somewhere around $6.2 billion to $6.5 billion in free cash flow.
And similar to what we've talked about in the profits, the cash flow also improves in the back half of the year which is normal, because first half of the year we're paying off bonuses and things like that from the prior year, and the cash flow is just by its historical nature is just lower, but the back half that will accelerate.
So we're still very confident that for the current year, we'll be in that $6.3 billion to $6.5 billion.
And similar to what we've been talking about earnings growing close to double-digits on that cash flow going forward over the next several years, and generating as we talked about close to $40 billion in free cash flow over the next five years.
We're still very confident about that.
Okay.
Next question, please.
Well, I mean, as far as the trial process, yes, there was a process where there was briefings that had to be provided by both parties, like the government and Medtronics, that occurred I believe in October.
That's all taken ---+ has been done from what I understand.
And now we're in a situation that it's in the judge's purview.
The judge has the option to take as long as she would like in this case.
We are assuming that some ---+ towards the end of our late, our FY16, early into FY17, is what she will make a decision, or [maybe later than that].
But it can go longer too.
This is up ---+ this is her decision on how quickly she move in making that decision.
As far as settlement discussions, again, I can't say anything on that because obviously settlement discussions require two parties to come together.
And at this point in time, I can't say anything about that at all.
I mean, if it happens, it happens, but in the meantime we're just waiting to see what the decision is from the court case.
First, yes, we really expect this growth to increase.
And the words that I'd like to use, and that I think I used in the commentary was that, we would like to see steady increase, and improve consistency.
So I don't want this to bounce back and forth between 15[%] and 8[%] or whatever.
This thing has to grow steadily, and our diversification across the emerging markets helps with that, and I think we'll see that.
The mid-teens goal is completely realistic over a period of time, and that's what we're aiming to get to.
The market opportunity is massive, and it's really up to us to execute our variety of strategies and get the benefits from them.
So in short, I expect this to steadily improve quarter after quarter.
Thanks, <UNK>.
Yes.
Well as far as the synergy number of $300 million to $[350] million, I'd say right now, we probably have already achieved about 40% of that, 35% to 40% of it has already been incurred.
We've indicated previously that a bigger portion would be in the back half of the year, and that's what we're still expecting.
So I would expect that 60%-plus of the benefit will occur in the back half of the year.
So we're right in line with our plans and our targets, in fact slightly ahead of where they are at.
But approximately 40%, we've already realized up to this point.
With respect to the guidance, just as far as taking a look at the quarters and stuff, all we're looking at is that if you look historically, our Q2 and Q3, historically both revenue and bottom line are relatively consistent.
There's not a big change overall between those two.
And we did a $1.03 here in the current quarter.
We're assuming that there will be an R&D tax credit that there's a benefit for in the third quarter.
And so, overall that would get you more in the $1.05 to $1.06 range.
And all we're saying, that's versus where the Street is at, I think they are a little bit higher than that number.
On the other hand, I would tell you I think the Street is a little lower in Q4, versus what we historically would see as far as an up lift.
So all we're saying is, if you look at our historical modeling, Q2 and Q3 are relatively consistent.
And it's Q4 where you see the big jump.
I think there's been too much weighting put into Q3.
And but again, these are your models.
You guys can put together how you'd like, but that's if you look at history, I think you're going to see that you're a little bit probably too high in Q3.
Okay.
<UNK>, you want to go first.
Bob, maybe the best way to think about it is just some statistics around mix.
Right.
If you look at dual chamber pacemakers right now, probably two-thirds of our product is MRI safe, as we sell into initial implants.
And with the recently ---+ two quarters ago, we launched the single chamber, we're probably now up to somewhere around 40% mix in single chamber for MRI safe.
We just launched the MRI safe ICD.
And our mix in the quarter would be probably somewhere around 20%, so there's still a lot of room to run there.
And obviously, we've not yet released the MRI safe CRTD, which we expect to do by the end of the year.
So I think that might give you some sense of how we see the mix change taking place within our business.
And with respect to the overall med tech market, look, we've had a ---+ the med tech industry has actually had a pretty good year.
And I think a lot of that as you'll acknowledge is driven by US growth.
So the US has been stronger than I can remember for a long time.
And that's not only the med tech sort of companies, but also hospitals.
Now as we go into sort of calendar year 2016, there will be some anniversarying that's happening.
And also some of the hospitals have reported slightly sort of lower growth rates.
And so, we're watching this carefully.
I don't know to what extent the procedure growth will continue at the same rate of growth.
I don't think it will slowdown per se, but the growth rate might well slow down.
So that's what we are watching very carefully.
And I think coming up to the next couple months, it's pretty crucial to see how procedures go.
But again, it really at the end of the day, it is a US story.
And to a certain degree, emerging markets, med tech has been resilient in emerging markets, compared to other industries, simply because of the nature of the industry itself, that governments continue to invest there.
So that hasn't ---+ the bottom really hasn't fallen off that at all.
And although I think we've outperformed the overall market, the market in general has been pretty resilient.
So those things holding, US growth is what's driven med tech industry.
I think US growth will anniversary, probably steady a little bit.
On the other hand, med tech in emerging markets might well start to improve.
I mean, I don't know.
I know our projections are that we'll start to improve.
Overall, we'll have to see.
Hope that helps.
We have time for one more question, operator.
I think I kind of alluded to that a little bit.
First of all, in the ---+ since the acquisition we've set up the minimally invasive therapies group under Bryan.
And Bryan and his team have really chartered a very clear and compelling vision for the future, which is outcomes-based, and very aligned with the Medtronic mission.
So that was the first step, and I think I talked about the four areas of focus within MITG.
Now we're looking at the entire range of assets that we have within MITG, and kind of assessing that against the strategy.
And as we go through that process which we're in the middle of doing, in the next six months or so, we will have, we will take action as is necessary.
But that's the way in which we're gauging it.
So the first step was to decide clearly, and get full sort of excitement with the team, and agreement with the team, that this is where we should go, which I think the team has put in place, and understand what the core product technologies that drive that, and solutions that are necessary for that.
Next is to look at the breadth of everything else, and see what fits and what doesn't.
Now some things clearly don't, and we'll have to see how we monetize those assets as we ---+ as you move forward.
But by and large, that's the way in which we're looking at this.
That is an area that is pretty active.
I mean, one thing that you just heard about was in stroke, where the LINQ product feeding into the stroke care and neurovascular channel is one that's pretty high on our list.
I can tell you that as a business, we worked as a leadership team, we worked to figure out methodologies where internally we can have our selling group sell multiple products, and do it in a way that's scalable and sustainable, and done in an organized way around the world.
I think that first step was pretty important.
So that area certainly is a big sort of enabler for us to move products around various sales channels, and we've done that.
We'll have to see how these things go forward, because a lot of discussion between sales teams using those principles, without getting distracted from their main focus as to how to accelerate their growth.
So we're optimistic that we'll start to see those, but the specifics of those right now are still sort of being generated.
The other area that I'll point out, is the translation of the operating room managed services from cath lab.
That's a big step for us, and the acceleration there is pretty exciting.
As you can see, like I've said we've already closed six of those deals, $140 million in cumulative revenue.
That's much faster than anything that Covidien was originally planning for, and we're only beginning there.
So those are the ways in which we're looking at this right now.
And over time, we're creating a structure where we can use the combined nature and assets of our Company to address many different problems, both from a technology perspective and from a co-morbidity perspective, which will be an increasing problem in health care, where we think we have the breadth of assets that we can address very effectively.
Okay, so with that, thank you all very much for your questions.
And on behalf of the entire management team, I'd like to thank you again for your continued support and interest in Medtronic.
We look forward to updating you on our progress in our Q3 call in March 1.
Thank you, and all of you, please have a great day, thank you.
