Exchange: NYSE | Sector: Healthcare | Industry: Medical Devices
Q3 2025
Published: Feb 25, 2025
Earnings Highlights
Revenue of $8.29B up 2.5% year-over-year
EPS of $1.01 increased by 2% from previous year
Gross margin of 66.5%
Net income of 1.29B
"This will be a $1 billion business for us this fiscal year, and we have line of sight to $2 billion as our PFA portfolio expands into new accounts around the world." - Geoff Martha
Medtronic plc (MDT) QQ3 2025 Results: Mid-Single-Digit Growth Sustained by PFA CAS, Diabetes and Neuroscience; Margin Expansion Accelerates Earnings Power
Executive Summary
Medtronic delivered another quarter of mid-single-digit revenue growth, underscored by strong contributions from high-growth franchises and continued margin leverage. The third quarter featured 4.1% organic revenue growth to $8.292 billion with improved gross margins (66.6%) and operating margins (26.2%), driving adjusted EPS of $1.39 (up 6.9% YoY). Management reiterated FY25 organic revenue growth guidance of 4.75-5% and high-single-digit EPS growth in the back half of the year, highlighting a robust earnings power trajectory enabled by product mix, pricing discipline, and efficiency programs. The narrative centers on stacking growth drivers (Cardiovascular CAS via Pulse Field Ablation, Evolut FX+, diabetes technology, neuromodulation) atop an already diversified base, with a multi-year path toward significant new market opportunities including renal denervation (RDN) and Hugo robotics. Management also signaled near-term operational headwinds (U.S. surgical distributor destocking) that are expected to normalize in Q1 FY2026, as well as FX headwinds that are anticipated to be meaningfully reduced in FY2026.
Key Performance Indicators
Revenue
8.29B
QoQ: -1.32% | YoY:2.51%
Gross Profit
5.51B
66.49% margin
QoQ: 1.03% | YoY:3.88%
Operating Income
1.65B
QoQ: 3.20% | YoY:10.99%
Net Income
1.29B
QoQ: 1.89% | YoY:-2.12%
EPS
1.01
QoQ: 2.02% | YoY:2.02%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $8.292B; organic growth 4.1% YoY; Q2-Q3 dynamics reflected in mid-single-digit growth across most portfolios.
Gross margin: 66.6% (up 50 bps YoY; up from prior-year level).
Operating margin: 26.2% (up 100 bps YoY).
Net income: $1.294B; net income margin 15.6%.
EPS (adjusted): $1.39, up 6.9% YoY; GAAP EPS shown as $1.01 per share (earlier period basis).
Financial Highlights
Financial highlights (Q3 FY2025):
- Revenue: $8.292B; organic growth 4.1% YoY; Q2-Q3 dynamics reflected in mid-single-digit growth across most portfolios.
- Gross margin: 66.6% (up 50 bps YoY; up from prior-year level).
- Operating margin: 26.2% (up 100 bps YoY).
- Net income: $1.294B; net income margin 15.6%.
- EPS (adjusted): $1.39, up 6.9% YoY; GAAP EPS shown as $1.01 per share (earlier period basis).
- Cash flow: net cash provided by operating activities $2.572B; free cash flow $2.096B; capital expenditures $0.476B; dividends paid $0.897B; share repurchases $0.181B.
- Liquidity and leverage: cash and short-term investments $7.922B; total debt $26.607B; net debt $25.367B; current ratio 1.901; debt to capitalization ~0.350; dividend yield 0.78%.
- Guidance: FY25 organic revenue growth 4.75-5%; FY25 non-GAAP diluted EPS $5.44-$5.50; FX headwind expected to be $275-325M on revenue and a smaller proportion on EPS; Q4 to deliver mid-single-digit revenue growth and high-single-digit EPS growth in the back half of FY25.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
8.29B
2.51%
-1.32%
Gross Profit
5.51B
3.88%
1.03%
Operating Income
1.65B
10.99%
3.20%
Net Income
1.29B
-2.12%
1.89%
EPS
1.01
2.02%
2.02%
Key Financial Ratios
currentRatio
1.9
grossProfitMargin
66.5%
operatingProfitMargin
19.9%
netProfitMargin
15.6%
returnOnAssets
1.44%
returnOnEquity
2.62%
debtEquityRatio
0.54
operatingCashFlowPerShare
$2.01
freeCashFlowPerShare
$1.63
dividendPayoutRatio
69.3%
priceToBookRatio
2.34
priceEarningsRatio
22.35
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key takeaways from the Q3 earnings call:
- Growth drivers and cadence: Geoff Martha highlighted a broad-based growth profile with CAS PFA growth of 22% in Cardiac Ablation Solutions, double-digit growth in Leadless pacing, neuromodulation, and diabetes, and high-single-digit growth in structural heart excluding some segments. He framed PFA as a major growth driver and noted a line-of-sight to accelerating growth in Q4 and a potential ~$2B target as the portfolio expands globally. "We delivered another quarter of mid-single-digit revenue growth for the ninth quarter in a row... CAS delivered meaningful acceleration, growing 22%."
- PFA ecosystem and supply: Geoff described Affera and PulseSelect as the two PFA platforms providing flexibility and safety differentiation, with Galway manufacturing as a near-term capacity catalyst. "We are the only company with two PFA platforms... Affera has separated itself... PulseSelect gives us flexibility. Supply has improved; Galway is a game changer."
- Hypertension and simplicity: Martha emphasized the simplicity blood pressure procedure as a large, untapped growth vector with Medicare coverage in place imminently and national coverage analysis underway, positioning this as a near-term growth driver.
- Neuroscience and AI-enabled spine/care disruption: Neuromodulation grew 13% with notable U.S. growth; AI-driven planning software, robotics, and imaging are reshaping the spine market, with Siemens collaboration expanding pre- and post-op imaging.
- Surgical headwinds and Hugo roadmap: A temporary distributor destocking effect (~200 bps) affected U.S. Surgical growth; Hugo is advancing toward U.S. market entry and broader indications, with more than doubling Hugo procedure volume YoY.
- Diabetes technology leadership: Consistent double-digit growth driven by CGM and AID systems; upcoming Simplera Sync and FDA filings for expanded labeling (Type 2 diabetes) are expected to unlock new opportunities; Europe has strong feedback on the Simplera Sync sensor.
- Guidance and FX: Gary Corona reaffirmed FY25 guidance and highlighted FX headwinds, with a plan to reduce FX impact in FY2026 via hedging, pricing adjustments, and natural hedges in the supply chain. "FX would have an impact to fiscal 2025 in the range of $275 million to $325 million... We will have a significantly smaller impact than that in fiscal 2026."
This will be a $1 billion business for us this fiscal year, and we have line of sight to $2 billion as our PFA portfolio expands into new accounts around the world.
— Geoff Martha
Our Q3 revenue of $8.3 billion grew 4.1% organic. On the bottom line, adjusted EPS was $1.39, up 6.9%.
— Geoff Martha
Forward Guidance
Outlook and risk assessment: Management reiterated FY25 organic revenue growth guidance of 4.75-5% and mid-to-high single-digit EPS growth through the back half of FY25, signaling earnings leverage as cas and Ardian ramp and as CAS accelerates in Q4. They expect Q4 to deliver continued growth with cardiovascular leadership contributing to top-line acceleration. FX headwinds are expected to wane in FY2026 due to improved hedging and pricing actions, while the company continues to pursue tuck-in acquisitions to boost margins and growth. Near-term catalysts include: (1) Cardiac Ablation Solutions post-PFA growth, (2) Evolut FX+ and extended TAVR data sets, (3) Hugo robot roadmap (U.S. market entry, new indications, and LigaSure/Vessel Sealing tech addition), (4) Renal Denervation (NCA→NCD transition in the U.S. with July 2025 CMS timing and October 2025 uptake), and (5) diabetes Simplera Sync FDA submissions and expanded labeling for 780G (Type 2 diabetes) in H1 FY2026. Key factors for investors to monitor: progression of PFA supply ramp and adoption in new geographies, regulatory approvals and payer coverage evolution (especially NCD in the U.S. and European HTA outcomes), the rate of Hugo scaleback in the U.S., and the trajectory of FX hedging effectiveness alongside pricing/mix improvements. Overall the framework supports a constructive view on sustainable mid-single-digit revenue growth and durable earnings power, with a path to higher-margin expansion as the growth drivers scale.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
MDT Focus
66.49%
19.90%
2.62%
22.35%
EW
80.60%
29.10%
32.20%
3.21%
ABT
55.80%
17.50%
4.14%
30.03%
BSX
68.80%
17.40%
2.26%
65.93%
ZBH
70.50%
15.30%
2.01%
21.92%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Medium- to long-term constructive investment thesis anchored in a diversified growth engine, margin expansion, and improving earnings power. The company reconfirmed FY25 organic revenue growth of 4.75-5% and high-single-digit EPS growth in the back half of FY25, indicating a durable earnings path. Near-term catalysts include PFA ramp, Hugo U.S. entry, and RDN payer coverage in the U.S. with international reimbursement progress. The balance sheet supports ongoing R&D and selective tuck-in acquisitions to accelerate growth and margins. Key monitorables for investors: pace of PFA supply ramp, new indications and regulatory approvals (Hugo, Ardian, Ardian-accretive acquisitions), RDN coverage milestones, FX hedging effectiveness into FY26, and the trajectory of Simplera Sync FDA approvals. Given MDT’s P/E around 22x vs peers with higher multiple profiles and robust free cash flow, MDT offers an attractive risk-adjusted profile for a diversified medtech franchise with strong cash generation and a clear path to higher-margin expansion as growth drivers scale.
Key Investment Factors
Growth Potential
High: Medtronic's growth engine is dominated by a diversified mix of high-potential franchises: Cardiac Ablation Solutions powered by Pulse Field Ablation (Affera and PulseSelect) with a ~$2B revenue line-of-sight; Evolut FX+ and long-term structural heart data catalysts; diabetes tech leadership with 780G and upcoming Simplera Sync FDA filings; neuromodulation growth aided by closed-loop AI-enabled systems; Hugo robotics with U.S. commercialization and expanding indications; renal denervation (RDN) with a large US opportunity upon CMS/NCA to NCD transition; and tibial stim for overactive bladder in the medium term.
Profitability Risk
FX volatility and hedging effectiveness; U.S. surgical distributor destocking and potential share underperformance in the near term; China VBP impact on Peripheral Vascular; competitive dynamics in spine and robotics; execution risk around regulatory approvals and payer coverage globally; reliance on large, capital-intensive product launches that require sustained investment; potential timing risk around Hugo and Ardian contributions to earnings power.
Financial Position
Strong free cash flow generation supporting a growing dividend and opportunistic buybacks; solid liquidity with cash and short-term investments of ~$7.92B and net debt of ~$25.37B; robust gross and operating margin expansion (66.6% gross margin, 26.2% operating margin) enabling ongoing R&D investment and potential tuck-in acquisitions; diversified geographic exposure with positive mix effects and cost-down programs driving margin resilience.
SWOT Analysis
Strengths
Diversified, technology-led portfolio spanning cardiovascular, neuroscience, medical surgical, and diabetes.
PFA-led Cardiac Ablation Solutions with two platforms (Affera and PulseSelect) delivering faster growth and higher revenue per case.
Robust margin expansion (gross margin 66.6%, operating margin 26.2%) driven by COGS efficiency and pricing/mix improvements.
Strong cash generation and capital returns (dividends and buybacks) supporting shareholder value.
Leading diabetes tech with 780G and a pipeline of next-gen sensors and labeling expansions.
Hugo robot program advancing with increasing indications and U.S. regulatory progress.
Weaknesses
Near-term U.S. Surgical headwinds due to distributor destocking (~200 bps impact) and longer sales cycles in a competitive stapling market.
FX headwinds affecting FY25 revenue/EPS with a path to mitigation in FY26.
Reliance on large capex-intensive launches requiring sustained investment and execution risk in new markets (e.g., Hugo, Ardian, RDN).
Opportunities
Renal denervation (RDN) market expansion with CMS NCA→NCD progression in the U.S. and payer adoption globally.
Simplicity hypertension launch as a major growth driver once coverage ramps.
Continued data catalysts and long-term evidence for Evolut FX+ and other structural heart data sets.
Expansion of Hugo indications and integration of LigaSure Vessel Sealing; potential urology indications in the U.S.
Tibial stimulation for Overactive Bladder creating a sizeable new market.
Threats
FX volatility and timing risk around hedging effectiveness and pricing decisions.
China VBP impacts on peripheral vascular and other segments; geopolitical/regulatory changes.
Competition in spinal, neuromodulation, and surgical robotics potentially intensifying pricing and share pressure.
Macro uncertainties affecting hospital capex and procedure volumes.