Dive Brief:

• Medtronic raised its full-year earnings guidance on the back of a third quarter that beat analyst expectations. Earnings and revenue both came in above consensus estimates as a result of mid-single-digit growth at most of Medtronic's units, including the restorative and minimally-invasive therapy businesses.

• Growth at those units was partly offset by a flat quarter at the cardiac and vascular group, which was rocked by a more than 40% drop in sales of left ventricular assist devices (LVADs).

• Separately, the medtech giant said it won FDA breakthrough designation for an experimental closed loop insulin pump system.

Dive Insight:

Medtronic has consistently beaten analyst earnings and revenue estimates over the past two years, resulting in its stock rising by double digits over that period. The medtech giant extended its record of above-expectation results in the third quarter by recording sales of $7.5 billion and non-GAAP EPS of $1.29.

Both figures are above consensus estimates, albeit fractionally in the case of the revenues, and put Medtronic in a position to raise its guidance for the year. Medtronic now expects non-GAAP EPS of $5.14 to $5.16, figures that bracket the upper end of the old forecast. Management also raised its free cash flow forecast and narrowed its revenue outlook to the upper end of the former range.

The beat-and-raise quarter was underpinned by growth across most of Medtronic's business. Sales at the restorative and minimally-invasive therapy groups, which accounted for 55% of all Medtronic's revenue, rose by around 5% on both a reported and constant currency basis.

The smaller diabetes group experienced similar growth. On that front, analysts at RBC Capital Markets called the results 'light.'

The FDA breakthrough designation aims to build on Medtronic's hybrid MiniMed system. So-called Personalized Closed Loop technology aims to automate insulin delivery in a timely manner.

Medtronic identified the respiratory, gastrointestinal and renal subunit as the star performer of the minimally-invasive therapy group, singling out mid-teens renal care growth as a particular highlight.

The performance of the subunits of the restorative therapy units was patchier, with the spine group's third flat quarter of 2018 being offset by another double-digit jump in sales of brain therapies. As in the first two quarters, the neurovascular franchise fueled growth at brain therapies. Growth at the neurovascular franchise was driven by a 20%-plus rise in sales of stent retrievers for acute ischemic stroke. Solitaire Platinum was behind the rising demand for stene retrievers.

Growth in those areas offset weakness at the cardiac and vascular group, Medtronic's largest unit. Falling revenue at the cardiac rhythm and heart failure subunit dragged the group down, resulting in sales growth coming in either side of 0% on a reported and constant currency basis.

The heart failure business is at the root of the problems. Overall, Medtronic reported a mid-teens drop in sales of heart failure devices but the situation was far worse for particular products. Notably, sales of LVADs fell by around 45%.

Medtronic entered the LVAD market in 2016 through its $1.1 billion acquisition of HeartWare and competes with Abbott for market share. Abbott gained an edge last year when it published clinical trial data linking its HeartMate 3 LVAD to a lower rate of stroke than Medtronic's HeartWare, leading analysts to speculate that it was well positioned to gain market share.

With HeartMate 3 winning FDA approval in October, those predictions have now come to pass, as Medtronic warned they would in January. Talking to investors following the third quarter results, Medtronic CEO Omar Ishrak attributed the sharp drop in LVAD sales to "market share loss and heart transplant guideline changes." Medtronic once had 35% of the market. In the third quarter, the figure fell to around 20%.

While those challenges will likely drag on, Medtronic thinks it can offset the softness with growth elsewhere. Ishrak predicted spine implant sales will grow in the coming quarters and reiterated his belief that Medtronic's pipeline has “more opportunities for growth than at any time” in its history.