Earnings Surprises in MedTech: Strategies for Investors

Recent Earnings Surprises in MedTech

Stryker and Abbott both reported strong earnings surprises, with Stryker achieving a 9.7% sales increase and Abbott exceeding analyst estimates with a 16% sequential EPS growth. Zimmer Biomet also overcame headwinds to deliver robust quarterly results, reinforcing confidence in their 2024 guidance.

""Our teams are executing well and I am confident in our ability to grow sales at the high end of MedTech and drive strong adjusted earnings growth in 2024." Sales Analysis Consolidated net sales of $5.2 billion increased 9.7% in the quarter and 10.2% in constant currency." --- (SYK, press release, 2024/04/30)

"We also reported adjusted earnings per share of $1.14, which exceeded analyst consensus estimates and represents a 16% sequential increase from the first quarter. Based on our performance in the quarter and confidence in our outlook for the remainder of the year, we raised our guidance and now forecast full year organic sales growth, excluding COVID testing sales, to be 9.5% to 10% and adjusted earnings per share in a range of $4.61 to $4.71. Our performance continues to be driven by broad-based growth across the portfolio with growth this quarter led by double-digit growth in medical devices and high single-digit growth in established pharmaceuticals and nutrition." --- (ABT, earning call, 2024/Q2)

"While overcoming a number of headwinds and tough comes. It is this quarter results from the first quarter of 2024 that give us a strong confidence that in the year 2024, we’ll realize our guidance of delivering 5% to 6% in revenue, growing 100 basis points to 200 basis points of a market, while delivering earnings, growing faster than revenue and delivering free cash flow above the earnings growth." --- (ZBH, earning call, 2024/Q1)

"In the first quarter, we delivered organic sales growth of 10% with double-digit growth in MedSurg and Neurotechnology and high single digit growth in Orthopaedics and Spine, despite one less selling day and tough comparables from a year ago." --- (SYK, earning call, 2024/Q1)

"The team's done an incredible job there. Last year, we were the fastest growing MedTech Company, at least from what I have seen from our guidance and from the other guidance’s in the market." --- (ABT, earning call, 2024/Q1)

Key Factors Driving Earnings Surprises

Strong sales performance and specific product-related inventory charges are key factors driving earnings surprises in MedTech companies like Boston Scientific.

"Q2 2024 adjusted earnings per share of $0.62, grew 15.4% versus 2023, exceeding the high end of our guidance range of $0.57 to $0.59, primarily driven by our strong sales performance. Adjusted gross margin for the second quarter was 70.4%, contracting 160 basis points versus the prior year period, driven by higher than expected inventory charges related to the POLARx cryoablation system, given the strong commercial adoption of FARAPULSE in the U.S., as well as increased levels of capital placements in the quarter." --- (BSX, earning call, 2024/Q2)

"Q1 2024 adjusted earnings per share of $0.56 grew 20.6% versus 2023, exceeding the high end of our guidance range of $0.50 to $0.52, primarily driven by our strong sales performance." --- (BSX, earning call, 2024/Q1)

Sector Trends Influencing Earnings Surprises

MedTech companies are leveraging operational expenses, improving earnings power, and managing free cash flow to create shareholder value. They are also adjusting for external financial pressures and capital spending challenges, while focusing on consistent earnings measurement and margin expansion to influence earnings surprises.

"You're also committed to earnings leverage. But given the opportunity to play offense here, why not go more aggressive on OpEx in the short term if you can produce visibility to the higher end of that 4% to 6% like how talk about the focus." --- (ZBH, conference, 2024/06/11)

"And when you add this to our improving earnings power, our strong free cash flow and dividend growth, you have a great formula for creating shareholder value." --- (MDT, earning call, 2024/Q4)

"To measure earnings performance on a consistent and comparable basis, we exclude certain items that affect the comparability of operating results and the trend of earnings." --- (SYK, sec filing, 2024/Q2)

"We continue to see our customers challenged by staffing shortages, inflation, debt servicing costs, and other financial pressures, particularly in the U.S. As a result, we expect our customers to continue to be cautious in their overall capital spending." --- (ISRG, sec filing, 2024/Q1)

"Second quarter adjusted operating margin was 27.2% and as a result of our first half margin performance and revenue upside versus previous expectations, we now expect to expand adjusted operating margin 50 to 70 basis points for the full year.Turning to the third quarter and full year 2024 outlook, we're guiding to organic growth of 13% to 15% for third quarter and raising our full year guidance from 10% to 12% to 13% to 14%, reflecting momentum across our broad portfolio, particularly in our EP business unit." --- (BSX, earning call, 2024/Q2)

Company Strategies for Managing Earnings Expectations

MedTech companies manage earnings expectations through strategic growth plans, reaffirming guidance, enhancing innovation cycles, executing strategic priorities, and unlocking hidden value within conglomerates.

"This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our growth plans, profitability and margin expansion, future products and solutions, including their effects and impacts, future opportunities, diversification plans, return of capital to shareholders, expectations regarding strategic alliances, and any statements about our forecasts, expectations, plans, intentions, strategies or prospects." --- (ZBH, press release, 2024/05/29)

"In addition, the company also reaffirmed guidance for its first quarter and full fiscal year 2025, as previously disclosed in its May 23, 2024, earnings press release and webcast." --- (MDT, press release, 2024/06/26)

"So we're looking, we obviously want to make money on it, but there are typically investments that we haven't aim to acquire for, to further enhance the innovation cycle of that particular business unit." --- (BSX, conference, 2024/05/29)

"Inside of the strong performance through the first half of the year, the team continues to execute on the three strategic priorities that I keep outlining in each and every earnings call and at every Zimmer Biomet meeting around" --- (ZBH, earning call, 2024/Q2)

"The strategy of unlocking hidden value within the conglomerate proved successful, delivering substantial gains for many investors.Merger and Multiply: The DowDuPont ManeuverBreen's next challenge came in the form of DuPont, a company facing pressure from activist investors who believed its stock price was undervalued. In" --- (MDT, press release, 2024/04/17)

Risks Associated with Earnings Surprises

Earnings surprises in MedTech are often driven by volatile factors such as forward-looking statements, tax benefits from share-based compensation, and various tax adjustments. These elements introduce significant unpredictability, making it crucial for investors to exercise caution and consider the inherent risks.

"Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release and which are based on current expectations and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those risk factors identified under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, as updated by the Company's other filings with the Securities and" --- (ISRG, press release, 2024/07/18)

"In the first three months of 2024 and 2023, taxes on earnings include approximately $25 million and $3 million, respectively, in excess tax benefits associated with share-based compensation." --- (ABT, sec filing, 2024/Q1)

"(5) The net charge primarily relates to an income tax reserve adjustment associated with the June 2023, Israeli Central-Lod District Court decision and the establishment of a valuation allowance against certain net operating losses which were partially offset by a benefit from the change in a Swiss Cantonal tax rate associated with previously established deferred tax assets from intercompany intellectual property transactions and the step up in tax basis for Swiss Cantonal purposes." --- (MDT, sec filing, 2024/Q4)

"The amount of excess tax benefits or deficiencies will fluctuate from period to period based on the price of our stock, the volume of share-based awards settled or vested, and the value assigned to employee equity awards under GAAP, which results in increased income tax expense volatility." --- (ISRG, sec filing, 2024/Q1)

"In the first six months of 2024 and 2023, taxes on earnings include approximately $29 million and $9 million, respectively, in excess tax benefits associated with share-based compensation." --- (ABT, sec filing, 2024/Q2)

Investor Strategies for Capitalizing on Earnings Surprises

Strategic corporate actions like divestitures, mergers, and splits (MDT), long-term investments and category leadership (BSX), share buybacks (ZBH), expanding operating margins (SYK), and continued pipeline investments (ABT) are key strategies for investors to capitalize on earnings surprises in the MedTech sector.

"Through divestitures, mergers, or strategic splits, he unlocks this value, allowing investors to benefit from the focused potential of the newly formed entities. This model aligns perfectly with" --- (MDT, press release, 2024/04/17)

"because of this investments that we've made over many years and that category leadership strategy by offering a leading LAAC product launch, a leading pulse field product and a leading access tool to actually get to where the position is to go." --- (BSX, conference, 2024/05/29)

"also is that we bought some shares back in the second quarter, aligned to our overall capital allocation strategy, which we outlined on our Investor Day." --- (ZBH, earning call, 2024/Q2)

"With our momentum heading into the rest of the year and our commitment to expanding operating margins, we now expect adjusted net earnings per diluted share to be in the range of 11.85 to 12.05. And now I will open up the call for Q&A." --- (SYK, earning call, 2024/Q1)

"So I think that you'll continue to see that. We'll continue to make investments in this business, continue to make investments in the pipeline." --- (ABT, earning call, 2024/Q1)

Future Outlook for Earnings Surprises

MedTech companies like Zimmer Biomet, Abbott Laboratories, Boston Scientific, and Medtronic express confidence in their future earnings, with specific growth percentages and increased earnings per share forecasts. This positive outlook, driven by better demand and market adoption, suggests potential for continued earnings surprises.

"On the earnings outlook, this year, if you look at our guide, it’s 6% to 8%, which again, we reiterate and feel confident in." --- (ZBH, earning call, 2024/Q1)

"Lastly, our second quarter adjusted tax rate was 15%. Turning to our outlook for the full year, we now forecast full-year adjusted earnings per share of $4.61 to $4.71, which represents an increase compared to the guidance range we provided in April." --- (ABT, earning call, 2024/Q2)

"And I guess really the question is, how do you feel about continuing through 2024 and really into 2025, is this a pull forward of the revenues expected in the long range plan, or do you think there's better demand, better market adoption, better volumes underlying pricing that could keep maybe not 14%, but something elevated for the foreseeable future?" --- (BSX, earning call, 2024/Q2)

"So I guess given some of these factors as we think about your revenue outlook for this year, the 4% to 5% you've talked about coming off a 5 plus quarter in Q4." --- (MDT, conference, 2024/06/11)

"But no real surprises, solid Q1 and a great outlook for the rest of the year. Suky, I don’t know if you have any other comments." --- (ZBH, earning call, 2024/Q1)