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Recent gains from Medtronic (MDT -7%) are being cut into today despite the medical device maker delivering its 11th consecutive earnings beat in Q3 (Jan) and reiterating its FY25 (Apr) adjusted EPS and organic revenue forecasts. The stock is amid one of its single-worst days of the past few years as it erases gains from the past month.

Today's setback branches from MDT's Medical Surgical portfolio, the only segment to post a yr/yr net sales decline, contracting by 1.9% on a reported basis and 0.4% on an organic basis, resulting in a minor top-line miss in the quarter. MDT posted total revenue of $8.29 bln, a 2.5% increase yr/yr. The company has been dealing with a disruption in its U.S. distributor buying patterns, clipping a couple hundred basis points off growth in Q3. Meanwhile, Medical Surgical is running into some competitive pressures, which MDT noted it is offsetting by winning share in one of its product suites and extracting high single-digit growth in emerging markets.

CEO Geoffrey Martha stressed that the relative weakness in Medical Surgical was not the result of any market share losses. In fact, the CEO commented that he believes the company continues to outperform slightly in the non-robotic space. Although there are headwinds in the U.S. robotics market.

• Outside Medical Surgical, MDT delivered a healthy performance in Q3. Consolidated organic revenue growth (excludes FX impacts and revenue adjustments) moved 4.1% higher yr/yr, led by a 10.4% jump in MDT's Diabetes segment. The company delivered its fifth consecutive quarter of double-digit growth in Diabetes, underpinned by a shift to more advanced automated insulin delivery (AID) systems to improve diabetes management.
• MDT's Cardiovascular and Neuroscience portfolios also performed well, expanding organic sales by 5.0% and 5.2% yr/yr, respectively.
  • In Cardiovascular, the company's PulseSelect and Affera platforms are driving sustained gains. Likewise, hypertension and MDT's Simplicity blood pressure procedure continue to support growth. Last month, it was announced that MDT will have Medicare coverage in place sometime over the next eight months, which the company believes will act as an immediate growth driver.
  • In Neuroscience, MDT noted that its surgical instruments in the spine business are creating market disruption, causing competitors to exit the market and expanding the company's economic moat.
• Looking ahead, MDT reiterated its FY25 adjusted earnings outlook of $5.44-5.50 and organic revenue growth prediction of +4.75-5.00% yr/yr. While Medical Surgical will continue to face headwinds, MDT noted that utilization is continuing to increase overseas, with Hugo procedure volumes doubling yr/yr. Hugo is MDT's robotic-assisted surgery system. Management added that in the U.S., it is on track to submit Hugo for FDA approval by the end of next month. Furthermore, MDT expects the distributor headwinds to resolve upon entering 1Q26 (Jul).

Bottom line, MDT's Q3 performance was decent. However, for a stock that has appreciated roughly +17% since the start of the year, the meaningful issues in Medical Surgical were sufficient to spark concern, driving today's sharp pullback.