Medtronic plc (MDT) Q4 2011 Earnings Report, Transcript and Summary

Good morning. My name is Darla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Medtronic's Fourth Quarter Earnings Release Conference Call. [Operator Instructions] Thank you. Mr. Jeff Warren, you may begin your conference.

Thanks, Darla. Good morning, and welcome to Medtronic's fourth quarter conference call and webcast. During the next hour, Gary Ellis, Medtronic's Chief Financial Officer, will provide comments on the results of our fourth quarter and fiscal year 2011, which ended April 29, 2011. After our prepared remarks, we'll be happy to take your questions. First, a few logistical comments. Earlier this morning, we issued a press release containing our financial statements and our revenue-by-business summary. You should also note that some of the statements made during this call may be considered forward-looking statements and that actual results might differ materially from those projected in any forward-looking statement. Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC, therefore, we do not undertake to update any forward-looking statement. In addition, the reconciliations of any non-GAAP financial measures are available on the Investors portion of our web site at medtronic.com. Finally, unless we say otherwise, references to quarterly or annual results, increasing or decreasing, are in comparison to the fourth quarter and full year of fiscal year 2010, respectively, and all revenue growth rates are given on a constant-currency basis. With that, I am now pleased to turn the call over to Medtronic Chief Financial Officer, Gary Ellis.

Good morning, and thank you, Jeff. This morning, we reported fourth quarter revenue of $4.3 billion, which represents growth of 2% as reported or flat on a constant-currency basis. After adjusting for the benefit we received last year from a CRDM competitor's stop shipment, revenue growth was 4% as reported or 2% on a constant currency basis. Q4 non-GAAP earnings of $966 million and diluted earnings per share of $0.90 increased 2% and 1%, respectively. Before going into the details of the call, we would like to remind you of the announcement we made nearly 2 weeks ago when Omar Ishrak was named as Medtronic's next Chairman and Chief Executive Officer. Given that he does not officially start until June 13, he will not be on today's call. As we are in this transition, Jeff and I will be conducting the call and Q&A. Omar is a talented executive with a long history of success in healthcare technology, including an impressive track record of delivering top and bottom line growth at GE Healthcare. His strong global perspective and experience driving innovation will be valued at Medtronic. We are excited to have Omar join the team next month and look forward to his leadership and introducing you to him in the future. At the same time, my colleagues and I also want to acknowledge Bill Hawkins' leadership these past 10 years in Medtronic, including 7 as President and 4 as CEO. Since he announced his retirement in December, Bill has remained actively engaged with the Board of Directors and the management team. Looking back at Bill's tenure at Medtronic, he was instrumental in laying the foundation for our cardiovascular business' current success. He also championed our One Medtronic strategy, focusing the company on capturing the benefits of our size and scale.…

[Operator Instructions] Your first question comes from the line of Matthew Dodds with Citigroup.

Gary, so I know you're going to get a lot of questions on ICD, so I just want to hit one area of the U.S. market. On the bulk order, can you give any idea of how impactful that was in the quarter because in the past I know in the fourth quarter that has a big swing on the revenue and is this really, in your view, kind of a one-time reset on bulk orders for fiscal '11 into '12?

Yes. Overall, we believe that basically, the bulk deals that we normally do in a quarter were actually about $30 million to $40 million below what we've seen for the past several quarters. It is a reflection, obviously, of what's going on in the implant side of the equation. As I mentioned in my comments, we clearly have seen slowing implants rates across the marketplace. I think as a result of that, hospitals were clearly looking at their inventory levels. We were doing the same thing. There's also, from our perspective, as we were going forward with some of the new products, we're obviously weren't quite as comfortable giving quite the same level of discount on some of the new products. So the fact that we had all these new products in the quarter that -- when the market was somewhat slowing, all led to basically the quarter-end deals that the bulk purchases being less than what we normally would see. We think that is a one-time kind of item that we wouldn't expect that to continue in the future unless, obviously, the market continues to even get softer. But at this point in time, we would expect it's kind of a one-time quarter deal.

It's Jeff. I'd just add that this is pretty similar to -- if you go back to Q1 of FY '07 when the market saw a slowdown. This was pretty similar to what we saw then.

Okay. And then one quick follow-up on the fiscal '12 guidance. When you look at the 1% to 3% constant-currency growth, you're doing pretty well in Europe, which is challenged in some areas. Are you assuming, Gary, the U.S. is flat to down in that kind of big picture, if you look at it geographically?

Yes, we are. I mean, we're assuming that basically, the U.S. market is clearly where we still have struggles in cost even -- all of our businesses even with the guidance that we are giving within CRDM and spine as far as being low to slow growth going forward is primarily because the U.S. market is declining. The international markets, emerging markets, are -- we're still seeing very positive growth. So yes, you would assume in that kind of guidance we provided that the U.S. market would continue to be flat to down and the international markets, the emerging markets, would continue their growth rates.

Just Europe, you think that could actually be up for you guys?

Yes, I think Europe could continue to grow for us. We're still -- we're obviously taking share in many of our product lines in that -- in those areas, and the market is still -- we're still seeing growth in most of the markets in Europe.

Your next question comes from the line of Mike Weinstein with JP Morgan.

So maybe just kind to get a couple of items. What stands out are really 2 things. One, obviously, on the cardiovascular side, a phenomenal performance [indiscernible] strength from all the new product launches. But then we look at U.S. CRM and U.S. spine, they're both so far light of -- I think what the street would have been expecting. It's just in both cases that it's more than just a market issue, and you talked about a reduction in bulk purchasing. How much of that -- I mean, you indicated on the -- in your comments that you thought that it wasn't that tied to what was going on in innovation and premier but they absolute drop off in those 2 businesses and it just seems too coincidental for it -- for us to think that it's just both markets got a lot weaker in the month of April.

Well, first of all, I'm glad that you picked up on the CVG growth and what was there because obviously as we talked about our CardioVascular businesses with Endovascular and everything that's going both Structural Heart and the whole Coronary market, we were very, very pleased as you indicated with those results. They had a great quarter and things were very, very well on those businesses. As you said, obviously, what we've seen in the U.S., especially in the ICDs and spine markets, we do believe it's clearly a market issue that's going on and obviously, a little bit impacted by the quarter in bulk purchases. So let me address kind of both -- there's 2 aspects there, what's going on with the market and then what happened with the quarter-end deals. As far as the markets go, I mean, I think we know based on the data we have seen and our own implant data that we have achieved and -- or have and with also data we get from other parties, we're clearly aware of the fact that the implants in the U.S. are down mid- to high single digits. We've seen that over the last -- since January, and that's actually continuing to be declining, and I think that's clear in the marketplace. And I think most people have been seeing that and feeling that. So that is happening and that is going to have an impact in the U.S. ICD market. Overall, pricing actually was actually slightly improved in the market, but clearly, the market on procedures in the U.S. was down, and if we think it's primarily related to, again, the DOJ investigations and the JAMA article. Spine is a little different issue. The market there was relatively stable from where it's been, but it's…

Okay. Let me just follow-up with just a question on the guidance, Gary. The $343 million to $350 million -- 2 questions. One, how much benefit do you think you're getting in FY '12 from the 4% to 5% headcount reduction that you announced, I mean, are back of the envelope roughly was about $0.15, but wanted to get your view on that. And then second, did Omar have any input on the FY '12 guidance?

Yes. Well, with respect to the restructuring, as I mentioned in my comments, we think the savings related to taking out the approximately 2,000 -- 2,100 employees, as we mentioned, is between $225 million and $250 million of savings related to that. And so that would tie into kind of what you indicated before. Now obviously, that is the amount that's coming out. Obviously, we're making -- we did that so we can make investments to drive some growth in the emerging markets and some of the new technologies like Ardian and transcatheter valve. So it's not just a -- you can't just take a net number and assume that that's the reduction overall. But that is the savings that we are getting as a result of the restructuring that will be reinvested back in the company and to drive the operating leverage I mentioned as I went forward. The second question with respect to guidance and Omar's input to that, obviously, Omar has not started with the company. He will start on June 13, but he -- that guidance is based on what's going on in the market and our overall plan. Omar has seen our plan for FY '12. He’s aware of that. He’s aware of the guidance. We obviously shared with him the guidance that we are providing to you today, so he’s well aware of those -- what we're doing and the guidance we're providing and is supportive of that. But obviously, the guidance we are giving is coming from the management team and the board at this point in time. And Omar, when he comes on board, might have different views later on. But obviously, initially, he's basing his assumptions on the fact that the management has put together an internal -- a plan and a guidance that we plan on achieving.

Your next question comes from the line of Kristen Stewart with Deutsche Bank.

Just, I guess, going back to the guidance since probably everyone's going to focus on it. To what degree do you guys think that you could do perhaps some additional share repurchase? Or to what degree may you be, kind of, I guess, overstating maybe some of the reinvestments from the restructuring savings? Because a little bit surprised that there isn't a little bit more leverage kind of coming through with the structuring and just kind of the overall cost initiatives you guys have talked about in the past.

Well, I mean obviously, we're providing guidance that we have every intention on meeting and exceeding going forward, and so that's what you should be taking based on the guidance we are providing at this point. We have kind of taken consideration in the guidance the fact that even though some of the markets are still soft in some areas, as we mentioned with ICDs and spine in the U.S., on the other hand, we have some very exciting new products, and we expect to take share with that as we move ahead. So as a result of that, we're basing that guidance on what we see happening in the markets. We got surprised on our markets declining last year, and we're trying to be somewhat cautious on that until we see where the markets themselves actually go. As far as the leverage, we are driving operating leverage and 80 to 100 basis point improvement in SG&A, that's quite dramatic and that's what we clearly need to focus on. Yes, there's savings that we’re getting from the restructuring, but there's also headwinds that we're going to have to be facing as we make some of the investments. First of all, just for -- on the current year in FY '11, based on our performance, our incentive plans didn't pay out where we would expect them to be going forward. So we're obviously going to have to see an increase in those levels. There's merit increases for the employees that are still at Medtronic, and as I mentioned in my comments, we have some very exciting new technologies and products that we're launching, and whether that's in transcatheter valves or some of the new things on Ardian, but even back to Solera and the Protecta, and Revo MRI SureScan, we need to make sure we make the investments to drive the share that we can get there. So we will continue to focus on leverage as an organization, but we're also going to continue to invest to drive growth in the company.

And would it be fair to say then that your guidance in terms of the top line assumes basically what you see in the market today? So no major improvements in overall market growth rates kind of across the board?

That's correct. I mean, that's -- our assumption is based on what's going on in the markets right now. The markets -- we do believe at some point the markets are going to improve, that we're not going to continue to see them down at these levels. When that occurs, we don't have a crystal ball to be able to predict, and so we're basing on that -- what's happening currently. If we would see the market starting to improve slightly, whether it's in spine or on ICDs, obviously, that would impact our overall guidance.

Right. So no utilization increase broadly by the market. [Indiscernible] estimate today extrapolate it forward.

That's correct.

And are you assuming a worsening of price environment across your book of business?

No, overall, we're assuming the prices in the market kind of remain kind of where they -- the pricing pressure remains kind of stable. Actually, we would assume for ourselves we'll actually see a little bit less pricing pressure than what we saw here in FY '11. Again, with all these new products and as I mentioned even on some of the discussion, with all the new products, we are already seeing in this quarter some benefits on the pricing side of the equation. I mentioned within CRDM, MRI Revo and Protecta, we saw pricing actually sequentially up in the ICD and pacing areas in the quarter with almost just limited launches of those new products. Solera has seen a price uplift. So the reality is, for ourselves, because of all the new products, we actually predict pricing will probably be a little bit better than what maybe the markets experiencing

And then geographically, this is when we anniversary the R-Zone adjustment from last year, so that's not going to be the headwind that it was in FY '11.

Within Japan, that's correct.

Yes.

Good point.

Your next question comes from the line of Bob Hopkins with Bank of America.

So just, Gary, to follow-up on that last comment with Kristen's question on your assumptions around market growth, I thought I heard you say that you think the U.S. ICD market was down high single digits this quarter after you make your adjustments and that you're -- are you assuming the same thing for 2012 that the U.S. ICD market is, again, down high single digits as you put together your guidance?

I think, obviously with all the noise in the quarter, it's hard to actually predict -- to determine exactly what was going on with the markets themselves. But we did see procedural growth kind of in that mid- to high-single-digit decline. Overall, we're -- going forward, we are kind of assuming mid-single-digit procedural decline in the U.S. Obviously, procedure is increasing outside the U.S. So that's why we're assuming the market is -- continues to be flat-to-down in the U.S. in those assumptions, yes.

But your -- just to be clear, your assumption for global ICD market growth in -- for the next fiscal year is roughly, what, low single digit growth for the ICD market?

For the ICD business, probably, overall, because with share we'll take and our pricing uplift, we're probably looking at about flat.

Yes. No, sir. I was just curious about that, your assumption on the market.

The market, we would say the market on U.S. ICDs we expect is down. And then worldwide, we would expect basically also flat, the market would be basically flat.

Okay. And then on spine, just to clarify, you said that your metal instrument business was down 1% in the quarter globally. What was that number in the U.S.?

I don't have that number exactly with me. As far as what's in the U.S., we can get back to you on that. But I -- it's obviously would be down more than that because, as we indicated, international was up 6% for us overall across the entire spine business, and I know metal constructs would have also been up. So it would be more than that 1% down. I -- we'll get back to you. I don't have that detail.

Okay. And then just lastly, your guidance for 2012 does assume a roughly $1 billion buyback?

That's correct. We're assuming basically on the buyback that we would continue at the same levels that we had here in FY '12. And again, obviously, from the standpoint of dividends and the buybacks, we are assuming that we continue the same thing with about 40% to 50% of our free cash flow being returned to our shareholders. As we've said in the past, and that would give you a kind of that $1 billion to $1.1 billion buyback.

Your next question comes from the line of David Lewis with Morgan Stanley.

Two questions, Gary. The first is on o U.S. dynamics, there's a lot of moving pieces here. You obviously took shares, significant share quarter-over-quarter. I wonder if you could help us understand, how much of this is Japan, and specifically in Europe, you're of sort of [indiscernible] the competitor launching the quadpole lead, and you have a value segment components or value products which launched this quarter. So help us understand, as you think about your o U.S. share gains sequentially, where the components of that fill up between products and geographies.

Well, as we indicated in the comments, basically in Europe, we picked up about a point a share, and in Japan, I believe it will also a about a couple of points a share in those 2 markets. So it's in both where we picked up share on the ICD side of the equation. I think within Europe, as you said, there's several moving components. Actually we're -- and this was sequentially versus the prior quarter, the Cardia and Egida were very important for us to get in the value segment. As we said in the last earnings call, that was an area that we really didn't have a product to compete against the competition with. I think some people were assuming that, that was actually the benefit of the St. Jude lead in the prior quarter, and we firmly believe it was related to this value segment more than anything else. And I think what the results showed in this quarter have highlighted the fact that, yes, that was where the issue was, was more in the value segment. So we were excited of the fact that we did see progress there. And so overall, we basically gained share in that part of the market. Protecta is also gaining share. I think our point is that it was also gaining share in Q3 previously, or so. I think there was actually more noise in the prior quarters because we didn't have a product in the value segment to be really competitive. Now that we do, I think what you're seeing is a true indication of where the market is and the reality is we have some very competitive products now across the full product line overall. In Japan, it was basically we -- with the new products, with getting Protecta in that marketplace, we clearly saw the uplift in that business overall. So again, this market, we're excited about these new products. What we're seeing in Europe and even with the early start what we've seen so far in the U.S. is these products are having an impact in the -- on both market share and in pricing.

Okay, very helpful, Gary. Let me just 2 quick follow-ups. The first is related to o U.S., maybe you can give us your outlook for fiscal '12 emerging market growth and how that would compare to what you saw in fiscal '11. And I guess second, Gary, just thinking about leverage, you gave a lot of detail here about low single-digit growth [indiscernible] a lot of your markets for fiscal '12. As you think about leveraging your business over the last several years, you were able to drive about 80 to 100 basis points of EBIT growth and perhaps that's fallen to something like 50 basis points of EBIT leverage. How do you see, once we have anniversaried the benefits of the restructuring, how do you see leverage in your business going forward?

Okay. Well, let me address the last one first, which is on the leverage component and kind of where we're at. I mean, as we've indicated, we are driving 80 to 100 basis points of SG&A leverage next year. We -- and overall, that we have a little bit of a question on what's going to happen on the gross margin side of the equation as we have some of these new products and some of new technologies that are putting a little bit more pressure on the gross margin line. Obviously, that will be offset with the pricing uplifts we're seeing overall. But we expect to continue to drive leverage in the organization going forward. And you're going to continue to see us taking costs out and shifting it to where some of the faster growing markets are. And then we would also assume, as you start you see some of these new products starting to kick in and not having some of the dilution related to some of the new technologies we have, that you're going to -- that's where you're going to also see some of the leverage as the Ardians and the transcatheter valves and these new products start to have an impact and really accelerate in the market side of -- the revenue side of the equation. Obviously, it's going to have a -- even more impact on the profitability of the organization overall. So we think that not only will you have leverage opportunities in the current FY '12, we think going forward, we'll continue to leverage the bottom line of the company and continue to drive earnings faster than the revenue growth. Back to the first question was...

Emerging markets.

Emerging markets, excuse me. Emerging markets, we would expect the growth, which was about 20% in FY '11, we would expect that same level in FY '12. The markets are continuing to be very, very strong. They're obviously getting these new products. We are continuing to make investments in that, so we've assumed in the guidance we just provided that basically those markets will continue to be in that 20% growth range.

Your next question comes from the line of Joanne Wuensch with BMO Capital Markets.

I want to focus in on 2 things. The first one is on gross margins. It sounds like you've got an ICD headwind, but some new product tailwind, and yet I'm still not seeing a lot of -- or any gross margin expansion for next year. In fact, down maybe a little bit year-over-year. Just generally, how are we thinking about that trend? And how are we thinking about that on a go forward basis?

Well, as we've indicated before, we continue to expect our gross margins as we said the last several years to be kind in that 75% to 76% range. We've been able to do that even with the pricing pressures that are out there. As I indicated in the quarter here, we were a little bit low at 75.3% than what we would have normally expected. A lot of that gets back to the fact that one of our highest margin products in the U.S. ICD area was lower clearly, and we wouldn't expect that as we go forward from the -- even just from the bulk purchases, we wouldn't expect that. So overall, that will be a slight positive as we go into next year. On the other hand, because of the mix of the geographic mix and where we're at, also just some of the new products that are being launched do have a little bit lower gross margin percentages even though we're getting an uplift in ASPs, there's also higher product costs until you get the volumes up to the levels you need to kind of offset that and get the product cost down. So there's a little bit of a headwind that we're facing that as we look into FY '12. But overall, going forward, we would still -- our assumptions are that we still maintain our gross margins in the 75% to 76% range. We are taking product costs out. We are doing things that are necessary to make sure that we can kind of maintain in that level and that's -- so that's our expectations both for FY '12 and going forward.

Okay. And not to beat a dead horse, but U.S. ICDs, it seems as if the market has decelerated or stepped down again this quarter for broadly over the last couple of months, both you and a competitor were talking about the DOJ and JAMA. Is the decline continuing or has it plateaued? Or can we talk a little bit about the trend?

Well, as you said, it’s just really occurred over the last few months, and so it's hard to predict any trends per se, although I would completely agree with you that it has decelerated. We've seen that in our data that we had would indicate the same thing. And as you indicated, I think the competition has the knowledge and the same type of an issue that it is out there in the marketplace. I don't think it's getting any worse from the data that we're seeing, but we’ll let's wait and see. But it -- so it's kind of plateaued at this point. But it is still out there. We haven't seen it -- the trend turn the other way and go back haven’t seen it -- an improvement on that aspect though. So we're watching, but it's really only occurred over the last few months, and we'll just have to continue to watch the data and see what happens.

And your next question comes from the line of David Roman with Goldman Sachs.

Gary, I was hoping you could expand a little bit more in your comments about some of the new products carrying gross margins. I understand higher product quality -- excuse me, higher product input costs as well as the fact that Revel, for example, is only 10% of the mix now. At what point do we start to see the benefit on the consolidated gross margin from some of these new products? Is there a certain level of penetration they have to reach before we can start to see that?

Yes, I mean, I think overall, if you get these new products, I mean, just using Revel as an example, the fact of the matter is, we're getting a very significant ASP uplift on this product, but it's also a more expensive product for us to manufacture. So not only just because of the volumes, but just because it is more difficult to manufacture. So you're going to have some pressure there even as you get the volumes up. But if you get up to, again, 40%, 50% of your mix, then obviously, you start to hit the volumes, it would have some impact on this. It's not just the newer products. I know someone -- everybody assumes the newer products with respect to our existing businesses. What I was also trying to get at is and what we're seeing is, for example, in AF, with CryoCath, obviously the margins in that business are not the same as they are, much -- or significantly lower than what they will be obviously with the U.S. ICDs. And so as you see growth in those aspects of the business, that's where you're going to see some impact on the margins overall. Even within Spine, for example, the Osteotech and Biologics margins are not the same as obviously the metal constructs. And so that's -- what I was also trying to get at is you start to see us go in some of these other emerging therapies, they don't always have the exact same margins, as high margins as we have in some of the older product lines. So in general, we see a little bit of pressure here as we indicated for FY '12, still in the 75% to 75.5%. So don't get me wrong, we still think we're going to have very strong overall gross margins, and that's with continuing pricing pressures that are out there in the marketplace. If those start to mitigate, obviously, then you could start to see that uplift even a little bit more because we are going to continue to take, even though we're in the fifth year now of our product cost reduction plan, we are going to continue to take product cost out to make sure that we can offset new pricing pressures and maintain those margins and hopefully improve on them. But right now, we're trying to give some guidance that gives us -- acknowledges just kind of what's going on with some of the new products themselves.

But it's fair to say that we're probably at the upper end of the range given the FX impact that we're looking at so far for FY '12.

Yes, if you [indiscernible] -- what we mentioned was on an operational basis, 75% to 75.5%. If the FX benefits that we talked about would come through, you would see those margins actually move up a little bit because, obviously, many of these are dollar based costs. So that was based on not having to add additional FX benefit in there.

So if you think of a longer-term view of the gross margin, it sounds like, on an ongoing basis, some lower gross margin businesses are going to make up a bigger percentage of the total as well as lower gross margin geographies. So how does the gross -- sorry, structural percentage, the gross margin perpetually moving down and the only way to offset that is some of the proactive cost reduction issues you're taking? Or is there something in business mix that sort of you talked about that FY '15 number of 2/3 of revenue coming in higher growth segments, those higher growth, lower margin segments? How many do you think, just the gives and takes?

There is obviously a lot of gives and takes in here, and everything is -- will vary depending on where the mixes are at. As I indicated in my comments, we believe that we're going to be in the 75% to 76% gross margins for FY '12 and going forward into the future. We don't expect it's going to have that much of an impact on. I mean, how -- I can't predict any further out than that to say that basically, over the next few years, we would expect to kind of be in those levels. There's a lot of moving parts on these new -- all these products are all very high margin products, but there will be variation on that. And that's something we just think we can manage going forward as we have over the last several years. As you've seen, we've been able to manage within that 75% to 76% range.

You should also note, David, that we've maintained those margins where you've seen our o U.S. mix go from, over the last 5, 6 years, from 33% of our revenues to now upwards of 43%. So clearly, when you look at the geographic mix, we're able to manage that quite effectively.

And then lastly, a couple of times earlier in the call, Gary, you talked about the benefit of sizing and scale in the diversified model across the portfolio. But if I look at the fiscal '12 top line growth rate, the 1% to 3% rate I think is the lowest among large [indiscernible] with the exception of one other company. What changes over time whereby that diversified model can actually drive improvements in the top line and drive a better multiple for the stock?

Well, I mean I think overall, even the things we're doing currently already in the -- on our marketplace with the combination of the cardiac and vascular sales force that I mentioned earlier in my comments. Those are all efforts where we're going to take the size and scale of Medtronic and really provide a full benefit to, on this case, on the Coronary and CRDM side of the equation to the hospitals themselves. And I think that will have a -- we're already starting to see that that's starting to have a very significant impact in the marketplace. Even just doing it on a pilot basis here in FY '11 with strategic accounts, we saw significant growth in those accounts where we could focus our sales organizations. And so we're pretty confident that's going to have a major impact going forward. As I mentioned in our comments, our guidance is based on the fact that the markets themselves are growing 1% to 3%. That's what -- the assumption we have. We are assuming we're going to grow at that or faster going forward. And so I think you will see that the size and scale will have a -- give -- provide some impact and that we will grow faster than the 1% to 3%. Other companies in the MedTech arena, I don't know whether they've adjusted their markets for what we've seen here clearly in ICD or are they -- as they -- do they expect to have same impact in some of the markets or they have the same products overall. So I can't comment on where the other MedTech market is at. But overall, we feel very, very confident that we have the products, the organization and a clear strategies to drive above market performance in this company going forward, and you're going to see that not only in CRDM, but you're going to clearly see it as we've already started to see in CardioVascular group equation. We're starting to see a pickup in Spine, and we expect to see that happening there. And obviously Diabetes, Surgical Tech continue to be very strong. So I feel very confident going forward, but we're giving guidance reflecting kind of what's going on in the marketplace right now.

And your final question comes from the line of Larry Biegelsen with Wells Fargo.

Just 2 questions, one on ICDs and then I have one follow-up. Gary, just to be clear, the implant volume, you saw a mid- to high-single -- mid- to low-double digits, I think you said implant declined. And that was consistent January through, I think, April. So you didn't see any deterioration, just to be clear? And then secondly, can -- how much do you think this is due to an end of the replacement cycle? Have you guys been able to piece that out or is it just DOJ and JAMA? And then I just have one follow-up.

All right. with respect to the ICD market, obviously, we don't have the data through April and some of the information, we don't get it on an economy basis. So it's more anecdotal information, but I would say, Larry, basically our overall information we get breaks out internationally, we have a view of what's going on with initials and with replacement. And so the initials are what we are -- we clearly -- we're seeing a mid- to high-single-digit decline in kind of the initials during that period of time in the marketplace. The replacements have also somewhat slowed, but it's not replacements driving this issue, at least over the last few months. It is on the initial side of the equation.

And the restructuring, do you think it had any impact on Q4 2011? Or do you think it could have some impact on the first quarter of fiscal 2012? I mean you announced the restructuring, I think, a quarter ago, so there was some uncertainty in the organization this past quarter. And I now you just implemented it, I think, at the beginning of May. So could it cause some weakness in the first quarter here?

Yes, I actually think there could be some impact in Q4. I mean let's be honest, With the transition that was going on, the new structures that we were discussing, could there have been some impact in Q4 as we were kind of in the transition? I think that's probably fair to say that there might have been some there. I don't think there really will be anything in Q1. I mean we kind of structured this such that we got off to a start real quickly here in Q1 and most of the announcements and all the decisions were made. And I think with most of the teams basically, now they know what they need to do, they know who's there and they're driving towards their objectives for the current year. So I would agree with you, I think there might have been some impact in Q4, but I would expect limited impact in Q1. If anything right now, I think the company is renewed, refocused, understands what's in front of us. We're past FY '11. We're focused on delivering on FY '12. Well, with that, before -- let me -- before ending today's call, I would like to close by stating that we are very excited about FY '12. Our management team is focused on driving the business for market-leading performance, as I said during my comments, and we are optimistic about recently improved products that we think will actually further differentiate us in the market. We look forward to having Omar Ishrak lead our company and believe we have taken the right steps to set us up for improvement in FY '12. With that, on behalf of the entire management team, I would like to thank you again for your continued support and interest in Medtronic. Thank you.

This concludes today's Medtronic's Fourth Quarter Earnings Release Conference Call. You may now disconnect.