Good day. My name is Shelby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Medtronic 4th Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. I would now like to turn the call over to Mr. Ryan Weispfenning, Vice President, Investor Relations. Please go ahead, sir.
Great. Thank you, Shelby. Good morning, and welcome to Medtronic's Q4 conference call and webcast. During the next hour, Omar Ishrak, Medtronic Chairman and Chief Executive Officer and Karen Parkhill, Medtronic Chief Financial Officer will provide comments on the results of our Q4 fiscal year 2018, which ended on April 27, 2018. After our prepared remarks, we will be happy to take your questions.
First, a few logistical comments. Earlier this morning, we issued a press release containing our financial statements and a revenue by division summary. We also issued an earnings presentation that provides additional details on our performance and outlook. During this earnings call, many of the statements made may be considered forward looking statements and actual results may 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 and other filings that we make with the SEC, and we do not undertake to update any forward looking statement.
In addition, the reconciliations of any non GAAP financial measures are available on our website, investorrelations. Medtronic.com. References to quarterly results increasing or decreasing are in comparison to the Q4 of fiscal year 2017 and references to annual results increasing or decreasing are in comparison divestitures and currency. References to pro form a exclude the impact of material divestitures. Unless we say otherwise, quarterly and annual rates and ranges are given on a comparable currency basis, which adjusts for material divestitures as well as the impact of foreign currency.
All of these adjustment details can be found in the reconciliation tables included with our earnings press release. Finally, other than as noted, our EPS growth and guidance does not include any charges or gains that would be reported as non GAAP adjustments to earnings during the fiscal year. With that, I'm now pleased to turn the call over to Medtronic Chairman and Chief Executive Officer, Omar Ishrak.
Good morning, and thank you, Ryan, and thank you to everyone for joining us. I'm pleased to announce that this morning we reported strong 4th quarter financial results. Revenues grew 6.5 percent organic, coming in 100 basis points above the high end of our guidance range. This marks the 2nd straight quarter of 6.5 percent organic top line growth, enabling us to more than overcome a very tough first half of the year. Q4 non GAAP operating profit grew 8% pro form a and 9% adjusted for currency, while non GAAP diluted EPS grew 14% 15%, respectively.
The operating margin expanded 80 basis points pro form a constant currency, and as we enter FY 2019, currency at current rates looks to be a tailwind to both margins and earnings for the first time in years. For the full fiscal year 2018, revenue of $30,000,000,000 grew 4.6% organically with a further 40 basis points from acquisitions. Non GAAP diluted EPS grew 9% pro form a and 10% constant currency. The second half of the year was particularly strong overcoming several first half challenges, including an IT disruption, multiple hurricanes, fires in Santa Rosa and supply constraints in diabetes. Despite all of this, we recovered well and came in at the high end of both the revenue and the EPS guidance we established at the start of the year.
We also continue to drive margin expansion, reduce debt leverage and return $4,300,000,000 to shareholders. We made significant progress against each of our growth strategies. In therapy innovation, we executed a number of meaningful product launches and advanced a pipeline of increasingly groundbreaking medical technology. We're creating new markets, disrupting existing markets and leading in several of the fastest growing growth markets in medtech. In globalization, we continue to lead our industry in expanding access into markets around the world, including delivering another year of double digit growth In economic value, we continue to develop new partnerships and business models to accelerate adoption of our innovative therapies.
Our ability to overcome multiple challenges to deliver at the level that we did in the second half of the year reflects the dedication of our 86,000 employees around the world, each of whom make a difference to benefit patients and fulfill the Medtronic mission. In FY 2018, together with our physician partners, we served over 71,000,000 patients or more than 2 patients every second. In the Q4, each of our operating groups delivered strong results with mid single digit revenue growth in CVG, MITG and RTG and over 20% growth in diabetes. Geographically, it was a strong diversified performance with 5.3% growth in the U. S.
And 4.6% growth in non U. S. Developed markets, including 4.4% growth in Western Europe and 5.5% growth in Japan. We also had a strong finish to the year with 15.5% growth in emerging markets. At the same time, we expanded our operating margin and delivered 2 90 basis points of operating leverage.
This helped EPS growth of 14% pro form a and 15% constant currency. As we look to FY 2019 and beyond, we have increasing confidence in our ability to deliver operating leverage and margin expansion as a result of our enterprise excellence program, which is now fully underway. Looking now to our group results in the quarter. Our cardiac and vascular group grew 5.4%, delivering sustained growth by leveraging the breadth of its products and services, as well as its strong positions in important rapidly expanding markets. In cardiac rhythm and heart failure, we had a very good quarter in pacing with high single digit growth driven by the continued rollout of our micro transcatheter pacing system, as well as the recent launch of the Azure next generation family of pacemakers.
We also continue to see strong growth in infection control, AF solutions and our mechanical circulatory support business. Fornary and structural heart delivered impressive 12.8% growth, driven by the rollout of our Resolute On X drug eluting stent in the U. S. And Japan, as well as low-20s growth in the transcatheter aortic valves. This was driven by continued strong global demand for our Evolut Pro valve and expanded indications in the U.
S, which has resulted in above market levels of growth for the past 5 quarters. In addition, during this past quarter, we received approval for our global pivotal trial of the SIMPLICITY SPYRAL, a new therapy for treatment resistant hypertension. With its innovative adaptive Bayesian trial design, which leverages prior enrollments in our previously reported off med clinical study cohort, patient enrollment is now well underway. Positive results of our SIMPLICITY SPYRO on med clinical trial were presented yesterday at the EuroPCR meeting in Paris, validating the role this therapy can have in patients with treatment resistant hypertension as an adjunct to medical therapy. Our minimally invasive therapies group grew 4.8%, led by 5.9% growth in surgical innovations with strength in advanced stapling and advanced synergy as we capitalize on the conversion of surgical procedures from open to minimally invasive.
Our innovative products improving outcomes and driving growth, including our Signia powered surgical stapling system, which uses our Tri Staple 2.0 reloads as well as our ValleyLab FT10 energy platform and new iterations of our Ligashore vessel sealing instruments. Our Restorative Therapies group grew 6.1% this quarter, its best quarter of organic growth since we established the group 8 years ago. This is despite the well known challenges in the spine market and reflects strong execution and robust growth, in particular in our brain and pain divisions. In Brain Therapies, we're leading the development of the endovascular therapy market for the treatment of ischemic stroke, resulting in high teens growth in neurovascular. We also had a great quarter in neurosurgery with low double digit growth, reflecting strong demand for our StealthStation S8 navigation system, the Mazor X robotic guidance system for spine surgery and our Visualase MRI guided laser ablation system.
In pain therapies, the turnaround is officially underway with back to back quarters of strong growth. Our spinal cord stimulation business grew mid teens this quarter, including high teens in the U. S. We're seeing great acceptance of our new offerings in spinal cord stim, including our Intelli Stimulator, our evolved workflow algorithm and our Snapshot reporting. This is a dramatic turnaround for a business that declined in the mid single digits in FY 'seventeen and low double digits in the first half of this year.
In spine, we grew 1%, better than the global market, which we estimate is slightly declining. We're seeing emerging strength in our differentiated spine products and procedures, including high single digit growth in BMP and OLIF, strong double digit growth in Prestige LP cervical discs and strong customer adoption of our new Solera Voyager 5.56.0 fixation system and Arctic L3dprinted titanium cage. In addition, when coupling our spine revenue with the spine enabling technologies that are reported in our neurosurgery business, our combined revenue grew 2.7%. We believe this is a more relevant comparison of our spine results against our competition and an indication that our surgical synergy strategy is working and driving our overall growth in spine procedures. Diabetes had a very strong finish to the year with low-20s growth driven by U.
S. Patient demand for our MiniMed 670 gs Hybrid Closed Loop System. We now have over 70,000 trained active users in our 670 gs system, and we continue to get positive feedback with real world results in line with our pivotal study data. Importantly, we have completed upgrades to our sensor manufacturing lines and now have capacity to meet expected global demand going forward. Outside the U.
S, we continue to see strong demand for our 640 gs system. We experienced another quarter of strong performance in Europe and recently received regulatory approval for the 640 gs in Japan. All of this led to our IIM division growing in the mid-20s internationally. Based on the strength of the 6 Series system, IIM share grew sequentially to 70% of all durable and consumable pumps globally. In addition, our sensor attachment rates continue to increase as we shift our customer base from standalone pumps to sensor augmented systems.
As this happens, our business is seeing an increasing revenue mix from CGM sensors, which creates a strong consistent annuity stream for our diabetes group. We're also excited about our entry into the $1,000,000,000 standalone CGM market with our Guardian Connect system. As our sensor capacity increased, we ramped up our commercial efforts for this product in Europe this quarter and expect to continue commercial expansion into the new fiscal year. In the U. S, we recently received FDA approval for Guardian Connect and intend to start our broad launch in the Q1.
Guardian Connect is the only standalone sensor that transmits directly to a smartphone. It features unique predictive alerts and in the U. S. Will utilize SugarIQ, which is based in the cognitive computing capability of IBM Watson to detect important patterns and trends for people with diabetes. Turning now to our globalization growth strategy.
Emerging markets, which represent 15% of our revenue, grew 15.5%. It is important to point out that it is not just one market driving growth, but several and reflects our broad diversification. Latin America, the Middle East and Africa, Eastern Europe and China all grew double digits in the 4th quarter. China, our largest emerging market, grew 12.7% in the 4th quarter and finished the year with over $1,800,000,000 in revenue. This is a significant increase from the less than $500,000,000 of revenue in the region when I joined Medtronic 7 years ago.
Our differentiated strategies of public and private partnerships, optimizing the distribution channel and driving local manufacturing and R and D are making a difference, not only in China, but in our emerging markets around the world. We're investing to build strong leading businesses in emerging markets as we continue to collectively represent the single largest opportunity in medtech. Our remaining growth strategy, economic value, is an accelerator for therapy innovation and globalization strategies. We continue to make progress in creating new value based business models that directly link our therapies to improving outcomes. With our DIRx related value based healthcare arrangements, we now have over 1100 hospitals under contract, covering over 30% of our U.
S. CRHF implantables revenue, helping to drive sequential market share gains in ICDs and CRT. This is one of the reasons why our performance in CRHF has been better than The Street was expecting 6 to 9 months back. The other reason is innovation, where we lead the development of several important and often disruptive technologies such as Micro. Finally, I want you to know that across Medtronic, execution is our top priority.
You've seen that in our results in the past two quarters, in our resurgence following a string of challenges in the first half of the year, and in our ongoing commitment to cost management that began by achieving our Covidien cost synergies and is now being extended into our enterprise excellence initiative. We know there's much work to be done, but we're excited and optimistic as our direction is clear, our pipeline is full and our team has never been stronger. With that, let me ask Karen to now take you through a discussion of our Q4 financials. Karen?
Thank you, Omar. As mentioned, our 4th quarter revenue of $8,144,000,000 represented a 2.9% increase as reported and organic growth of 6.5%. Foreign currency had a positive $315,000,000 impact on 4th quarter revenue. GAAP diluted earnings per share were $1.07 Non GAAP earnings per share were $1.42 After adjusting for the divestiture, non GAAP diluted EPS grew 14% pro form a and 15% constant currency. The operating margin for the quarter was 30.2%, representing an 80 basis point improvement on a pro form a constant currency basis.
Gross margin was down 50 basis points, reflecting our sales mix in the quarter. The impact of mix on our gross margin this quarter was more than offset by 150 basis point improvement in SG and A on a pro form a constant currency basis, reflecting our company wide initiatives on expense leverage. Net other expense, which is included in our operating margin, was $188,000,000 This was slightly higher than expected, primarily due to mark to market on some of our investments. Foreign exchange in total had 160 basis point negative impact on our operating margin in the quarter, primarily due to the year over year change in currency gains and losses related to our hedging program. But the good news is that based on current rates, we expect the currency headwind that's plagued us for several quarters on the operating margin to turn into a tailwind in fiscal 'nineteen starting in the Q1.
Our 4th quarter non GAAP nominal tax rate was 14.9%, slightly better than expected given favorable IRS audit resolutions. 4th quarter average daily shares outstanding on a non GAAP diluted basis were 1,366,000,000 shares. As expected, this was roughly flat sequentially. Combining our $1,800,000,000 of net share repurchase in fiscal 'eighteen with the $2,500,000,000 we paid in dividends over the same period, our total payout ratio was 65% on non GAAP net income and 118% on free cash flow. Free cash flow for fiscal 2018 was $4,700,000,000 above our prior guidance range and after adjusting for a $1,100,000,000 prepayment to the IRS related to our Puerto Rico tax litigation.
While the litigation is still in process, given our access to cash post tax reform, we elected to put as much of this potential $1,500,000,000 liability as possible behind us. By prepaying, we were also able to stop the accrual of significant interest. In the quarter, we reduced debt by approximately $3,000,000,000 allowing us now to focus on other capital allocation priorities going forward. Given U. S.
Tax reform, we will be continuing the liquidation of some of our investments overseas. Note that this will negatively impact interest income, but it will enable increasing access over the next several quarters to our formerly trapped cash on our balance sheet. We intend to put this cash to work by investing in our business and returning to our shareholders. Now looking at the picture ahead. For fiscal year 2019, we expect organic revenue growth to be in the range of 4% to 4.5%.
By business group, we expect CVG, MITG and RTG to grow 4% plus or minus with CVG likely on the minus side given the anniversary of major product launches in coronary and structural heart and MITG and RTG to be more in line with the 4%. We expect diabetes to grow in the low double digits with a stronger first half off of low comparisons. For the Q1, we expect total company revenue to be consistent with our guidance for the year. In addition to CVG, we expect MITG to be on the minus side of the full year, given more difficult comparisons from endostabling and capital sales, offset by more robust growth from diabetes with continued 670 gs strength. Turning to margins, we expect operating margin expansion in fiscal year 'nineteen of approximately 50 basis points on a pro form a constant currency basis, driven by our enterprise excellence initiative.
For modeling purposes, we would assume a slight improvement in the Q1 with increasing improvement through the remainder of the fiscal year. We expect our tax rate to be between 14% 15%, roughly in line with our fiscal 2018 tax rate. With respect to earnings, we expect fiscal year 2019 non GAAP diluted earnings per share in the range of $5.10 to $5.15 This implies EPS growth of 10% at the midpoint of the range. For the quarter, we expect non GAAP diluted EPS in the range of $1.10 to 1 $0.12 off the fiscal 2018 base of $1.03 We recognize that the Street didn't have the full picture on first quarter comparisons pro form a for the divestiture until we shared them last week in an 8 ks. So hopefully that filing helped.
Also keep in mind we had a lower tax rate in the Q1 last year from benefits not expected to repeat, creating a roughly $0.03 headwind in the Q1. Finally, on free cash flow, we expect $4,700,000,000 to $5,100,000,000 in fiscal year 2019. This excludes a potential final $400,000,000 payment Rico related to our pending litigation that I referenced earlier, the timing and outcome of which is uncertain. Over the next couple of years, we expect to make significant progress in improving our free cash flow conversion as litigation and tax payments are expected to diminish and we benefit from programs we have put in place to improve working capital. While the impact from currency is fluid, if recent exchange rates hold, our full would be negatively affected by approximately $50,000,000 to $150,000,000 Recall at the time of our 3rd quarter earnings call, it was a $500,000,000 positive impact.
However, despite this $600,000,000 swing, FX is still not as positive to fiscal 'nineteen margins, earnings and free cash flow because of our hedging program. If recent rate hold, we would expect reported operating margin of 28.5 percent for the year and a $0.05 tailwind to full year EPS. For the Q1, if recent rates hold, revenue would be positively affected by approximately $90,000,000 to $130,000,000 operating margin would have a slight benefit and EPS would have a $0.02 benefit. Before I turn the call back to Omar, I would like to note that we plan to hold our Biennial Institutional Investor and Analyst Day on Tuesday, June 5 in New York City. We intend to discuss our long term strategies and share our long range plan at that time.
Now I will return the call back to Omar.
Thanks, Karen. And to summarize, we have delivered 2 consecutive quarters of strong revenue growth to finish our fiscal year. We also expanded our operating margin and delivered meaningful EPS leverage. Looking ahead, we feel good about the growth opportunities in our markets and our competitive position in these markets. We expect continued revenue growth and margin expansion, and we're also focused on generating strong free cash flow conversion and making the right investments to drive shareholder value.
And finally, execution is our top priority. Before we turn to Q and A, we had the benefit of Mike Weinstein joining us earlier this month. Given his recent transition, we thought it might be helpful for him to make some comments. So Mike?
Certainly. Thanks, Omar. I'll make a few comments. I think for starters, I think it was a great quarter. There's a lot of work to do and I certainly don't want the Street to get out ahead of us.
But this was a good quarter 6 or 9 months ago when I was on the other side of this call. We are on the sell side. We're all worried about growth and the company's ability to execute the face of competition, competitors introducing MRI compatible pacers and ICDs, deep brain stimulators and surgical cardiac monitors, etcetera. And now here we are 6 months later and Medtronic has delivered back to back quarters of 6.5% organic growth. Again, I don't want everybody to extrapolate from that and start modeling 6.5% going forward.
But I do think it speaks to the breadth of the franchise minimum growth drivers moving in the right direction, which honestly, The Street, myself included, underestimated or missed 6 months back. RTG, as you noted, Omar had its best quarter in years, growing 6% organic despite all the challenges we're aware of in the spine market. Neurovascular grew high teens, neurosurgery grew low double digits and the FCS pain stim business has had a remarkable turnaround growing mid teens this quarter after a meaningful decline in the first half of this year. So that's all heading in the right direction. Diabetes obviously had a fantastic quarter growing 20% plus, well north of what the Street was modeling and Guardian standalone hasn't launched yet in the U.
S. And that's going to start this quarter. So I could go on. In fact, all 4 operating groups, CBG, RTG, MITG and diabetes did better than the street was modeling. But the good news is that it's not just the top line.
Margins are starting and I emphasize starting to go in the right direction. Gross margin beat by 20 basis points, SG and A beat by 80 basis points, the FX headwind to margins, which was severe this quarter and 160 basis points, which we and we were all focused on 3 months ago, should go away as we head into FY 2019, obviously assuming rates. But there's a long ways to go. And I think the good news is that we all know that. As Omar said, execution is the number one priority now and we're not going to let 1 or 2 good quarters go to our heads.
But I feel good that we're clearly heading in the right direction investor meeting on 5th will give us a chance to talk about it some more.
Okay. Thank you, Mike. And let's open the phone lines now for Q and A. In addition to Karen and Mike, I've asked Mike Coyle, who is President of CVG Bob White, President of MITG Jeff Martha, President of RTG and Hooman Hakimi, President of our diabetes group to join us. We want to try to get to as many questions as possible, so please help us by limiting yourself to only one question and if necessary a related follow-up.
If you have additional questions, please contact Ryan and our Investor Relations team after the call. And with that, operator, first question please.
Your first question comes from Bob Hopkins of Bank of America.
Thanks very much and congratulations on a great finish to the fiscal year.
Thanks, Paul.
Yes, it's a very clear strength and great to see. So I have a quick question for Karen and then a follow-up for Omar. Karen, to start with on operating margins, it's obviously been a focus point for investors. You delivered 80 basis points of underlying margin in Q4 and 20 basis points for the full fiscal year and you're guiding to 50 for 2019. So I was wondering if you could just talk about the 80 basis points of underlying improvement in Q4, which was a little shy of what you were hoping for at the 100 basis points you had talked about?
And then more importantly for fiscal 2019, can you talk about your goal of delivering 50 basis points of underlying margin improvement, which is above the 20 basis points you did this year? So what are the drivers of that? How much of that is from the restructuring? Just what gives you confidence that you can do 50 next year when you did 20 this year? Thank you.
Yes. No, thank you for the question, Bob. We were pleased with the operating margin improvement in the Q4 of 80 basis points. Keep in mind that that was driven through Covidien synergies that we are now benefiting from as well as the company wide focus on expense leverage. And it was delivered mostly through improvement noted 150 basis point improvement in our SG and A.
But going forward, we do expect to continue to drive operating margin improvement. We have a company wide program around enterprise excellence, which is intended specifically to drive margin improvement and also to help us offset pricing headwinds and continue to reinvest in our company. That enterprise excellence program is well structured, well underway, and we're confident in our ability going forward to continue to drive this margin expansion. We'll talk more about it at Investor Day as well.
Okay. And then I did want to follow-up with Omar on the emerging market growth because it just it really seems like a standout in the quarter. It drove over 2 points of growth in the quarter. So maybe talk about the sustainability of that emerging market growth. Were there any one time things impacting emerging growth in this quarter?
And kind of what do you assume for fiscal 2019 in terms of emerging market growth? Thank you.
Well, thanks, Bob. Like I mentioned earlier, the story in our emerging markets is our diversification and our presence in multiple geographies. While China is still the largest, we have significant presence in the Middle East and Africa and Latin America. And in the Q4, all of these geographies grew in the mid double in the sort of in the teens, the mid teens. And so that helped a lot in the Q4 performance.
Going forward, we certainly expect double digit growth in the emerging markets. I'd say the low double digits. That's what we've been performing consistently over time. There was certainly no one time swing here in the Q4. I think the diversification is playing out well for us with at least 3 big sort of geographic collection of countries that are well diversified amongst themselves.
So that's what gives us confidence that we can continue to do this. And above all, the biggest confidence that we have is that we've been delivering this for the past 5 years. So there's nothing other than better performance to expect going forward as our strategies start to play out.
Terrific. Thank you.
Your next question comes from David Lewis of Morgan Stanley.
Good morning. A couple of questions for Karen. Karen, just talking about the I want to start off with growth. So you mentioned the Q1 growth guidance, you're sort of assuming is comparable for your growth guidance for the remainder of the year. But the Q1 is also the easiest comp of the year.
And if you go back to fiscal 'eighteen, the defining element of that year was the first half was dramatically weaker than the second half. So I guess said more simply, what drives the momentum improvement in the business across the remaining three quarters if the Q1 is going to be comparable with the remainder of the year?
So I would remind everyone that our Q1 comes off the heels typically of a very strong end to our fiscal year. And so the Q1 is typically not our most robust growth quarter. The Q2 will be the quarter next year that comes off very low comparisons much more so than the Q1. So we're confident in the guidance that we've given for the Q1 of consistent with our annual guidance of 4% to 4.5%. But I would remind folks that both for CVG and MITG in the Q1, we do expect both businesses to be on the minus side of that 4% with MITG having difficult year over year comparisons from endo stapling and capital sales and CVG seeing the anniversary of some major product launches last year.
Okay, very helpful, Karen. The second question is just on cash I know improving cash flow is a big focus for 'nineteen and beyond. I imagine it will be a focus for the Analyst Day in a couple of weeks. But can you just kind of talk about for fiscal 'nineteen, the operating cash flow assumptions, CapEx assumptions, free cash flow conversion and maybe a little bit about some of the executive compensation changes that may be happening around free cash? Thanks so much.
Thanks for the question, David. On free cash flow for FY 2019, we said that we expect it to be between 4.75.1. We have improved our conversion ratio and honestly we expect to improve that conversion ratio going forward specifically over the next couple of years. In terms of things that impact cash on cash from operations, we expect that to grow in line with earnings. On CapEx, we expect CapEx to be roughly flat year over year.
We intend to spend a little over $1,000,000,000 in CapEx like we did this year. And we will have certain other payments related to our restructuring program, some continued legal payments. But we do expect tax specifically when you include the $1,100,000,000 payment related to the Puerto Rico litigation to decline meaningfully. We will still have that potential $400,000,000 payment to Puerto Rico. It's unclear whether or not that payment need to be made in fiscal 2019.
It will be dependent on the outcome of the litigation, but we will have that as well.
Your next question comes from Vijay Kumar of Evercore ISI.
Hey, guys. Congratulations on a nice quarter here. So maybe, Karen, just talking about the guidance and the cash conversion rate. So for the EPS guidance, what kind of assumptions are we making on capital deployment? And when you talk about cash conversions improving, what should be a normalized cash conversion for this business?
Can Medtronic go to 90% or north of 90% over the medium term?
So, on EPS, we are assuming this is organic. We obviously don't assume that we make any acquisitions or divestitures. On tax, I did say that we expect 14% to 15% tax rate for the year. And on our debt, we expect that to remain relatively stable now that we have completed the debt pay down that we have talked about. In terms of return to shareholders, we did announce recently that we expect to repurchase $1,200,000,000 in shares throughout the year.
That was commensurate with us talking about some debt tendering that we were doing. In terms of a normal cash conversion, keep in mind that our medtech industry is typically around the 80% conversion rate. And we expect to be improving to that range over the next couple of years. We are very focused on it and we expect particularly some of the one time charges that we've had over the past will be diminishing.
That's extremely helpful. And maybe one for Omar. Medtronic has done a fantastic job on the top line, right? I think the issue has always been for us maybe modeling some of the FX impact in the moving parts. The prior analyst days, Omar, a lot of the focus was on innovation, top line, what's happening with Medtronic, right?
And when we think about the upcoming Analyst Day, is there anything going to be different at this Analyst Day in terms of focus? Should we be expecting any update on the robot or anything else that you want to highlight? Thank you.
Well, I can assure you that technology and innovation will still be at the top of the agenda. That's what we're most excited about. That's what fuels this company. And we've got many our pipeline is fuller than it's ever been, and we're extremely excited about it, and we'll be I'm really looking forward to sharing all of that with you at Investor Day. But equally, we're laying out an enterprise excellence program.
And our focus on operating margins, our focus on cash flow are elements that are serious, and I expect they'll come through at Analyst Day. So again, there's going to be no drop off in our excitement around technology. And if anything, it's increased. And you'll see exciting examples from all our groups. But I do want to emphasize that the operating margin focus and our cash flow conversion focus driven by our enterprise excellence program will be clear as well.
And just sorry, on the robot, should we be expecting any update on the robot?
Well, look, we will robots are major program for us. And obviously, we're going to talk about it.
Thank you, guys.
Thanks, Vijay. Next question, please.
Your next question comes from Larry Biegelsen of Wells Fargo.
Good morning. Thanks 1 on TAVR and one on just new product launches in fiscal 2019. So maybe for Mike Coyle, by our math, it looks like the worldwide TAVR market did slow a bit in calendar Q1. Is that accurate? And what are you seeing in the market?
At PCR today, one of the presenters said that you would be presenting your low risk data at ACC in 2019. I just want to confirm that's accurate because that would be pretty impactful. And just lastly on TAVR, Mike, any expectations for the med CAC? Do you think it's more likely to expand, keep the same or decrease centers?
So thanks for the question, Larry. In terms of the TAVR growth profile for the quarter, we would peg TAVR growth at somewhere in the vicinity of the high teens, which obviously is a slowdown from 2 years ago, it was mid-20s, but for the fiscal year, it was low-20s, but still that's very strong growth given the size that, that market has grown to. And for us, obviously, we've been growing faster than that in the low 20s. So it's been an important growth driver for us, and we expect it to continue to be an important growth driver for us. In terms of pipeline, we're going to cover that at the Analyst Meeting next Tuesday.
We will show you what we have in terms of beyond the INVEO delivery system that is now rolling out in the United States and into Europe. We'll talk about that pipeline in terms of both iteration and then some of the more significant platform investments that we're making in TAVR going forward, not to mention what we're doing in Mitral. And then in terms of the Med CAC, our position is a bit intermediate to what we hear coming from the societies and then from some competitors in the sense that we believe that all currently, the current national coverage decision covers all of the indications for use for TAVR that are approved. And we don't see constraints at the moment in terms of being able to meet demand. We do think if the what the societies are proposing is adopted that we could see upwards of 35% of the centers now falling out of the ability to provide TAVR, which we think would be a problem for the access to this life saving technology.
And so our view would be to maintain the natural coverage decision until there is an expanded FDA approval for indications that are not covered by the NCD. And that would then give us time to basically evaluate the question of our centers that are smaller and have lower volume actually performing worse than those at high volume. And frankly, the data that we have seen to date would not support a conclusion that we're seeing meaningfully worse results in those smaller centers. So we think the NCD as it exists today is good. We support its continuation and we think it might be the right time to look at that maybe in a couple of years.
Thanks, Mike. And Omar, I know you have your Analyst Day obviously in a week or 2, but just questions, guys.
Thanks. I'll just name a few. And as you mentioned, we'll go through our overall pipeline in greater depth. The pain business, this turnaround in pain is very significant and we're extremely excited about what we're seeing. And we're seeing that with the Intelis product, our Evolve workflow and our Snapshot reporting.
I think these are unique elements in that industry and it's a massive turnaround from as recently as the first half of this year and something we're getting a lot of traction. So I think continued momentum in pain is something that we will definitely see. Diabetes is the other one. I mean, we're just starting there to get the full benefit of the 670 gene in the U. S.
And we're extremely excited about what we see. But equally, we've got penetration of the 670 gs into global markets on the back of a 640 gs, which is already very successful. And then the Guardian Connect is a whole big opportunity, which I mentioned, which also is a big area for us. I think in CVG, you heard Mike talk about it, but there's many areas here. One that I don't know the exact contribution to growth, but I'm extremely excited about is the further evolution of the Micra product, which is a revolutionary product for us and one that we're extremely proud about.
And the consistent growth that we've seen in surgical technologies within MITG will continue. We have a rich pipeline of products and they come out regularly and that will be sustained into next year. So we expect an exciting year full of new products, which will continue to fuel our growth.
Thanks for taking the questions, guys.
Thank you, Larry. Next question, Shelby.
Your next question comes from Robbie Marcus of JPMorgan.
Hi, and congrats on the good quarter.
Thanks.
2 of the businesses that stood out were diabetes and spinal cord stim. And Omar, you touched on this just briefly in the last question. But you have new product launches there. Maybe you could give a little more color into what you're seeing in the dynamics with the product launches and how you think that's impacting the market?
Sure. I'll let the 2 group leaders kind of briefly comment on that. Suhman, you want to go with diabetes first?
Sure. Ravi, I think the quarter was really strong. We had some great balanced performance across businesses, across geographies. I'd say there were really 2 main drivers. The first is strong global pump growth that we saw.
And Omar just touched on this a second ago. The first was just continued strong uptake of the 640 gs in markets outside the United States, but in particular, Europe. And then we have seen continued strong performance out of the 670 gs in the U. S. And this is really encouraging because in many ways we're just getting started here.
So you look at those dynamics, all of those things led to 6 points of share gain for us across both consumable and durable pumps this past quarter, which we're obviously really excited about. The second big driver for us was the pull through of sensors. This is as we sell more integrated systems, we're seeing more sensor pull through. So both the 640gs, the 670gs are driven by sophisticated algorithms where the pump and the sensor work together to keep a patient in control. As we sell more of both of these things to continue and for us starting to capitalize on a standalone CGM market that we're just starting to get into.
Okay. Jeff, you want to say a few words about pain?
Yes, sure, sure, Ravi. Obviously, Intel is off to a strong start for a couple of reasons. One, the device itself, I mean, it's much, much smaller than the competition. It's a much faster 3 to 4 times faster recharge, very little battery fade over time, MR compatible, etcetera. And so there's some real compelling differences there.
And in addition, our Evolv workflow, which really drives the outcome, has been, I believe, underappreciated. And these two things taken together get us back in the game. Regarding EVOLVE, we're still building credibility as we produce more robust data over time. We just launched our VECTOR trial, which is our prospective clinical trial assessing multiple aspects of EVOLVE. We're thinking enrollment is underway and on schedule, and we anticipate the first release of this data at NANS in January of 2019.
In addition, we published some other data from we call it the Verdelin data from Doctor. Verdelin. We presented that recently at 2 scientific meetings and we got really strong results. So this is an independent physician study nearing real world outcomes. And we had 83 percent of the 114 patients, 114 patients had 75% pain reduction.
So this is really good results. And after 3 months, we saw similar results. So we're seeing really strong data from EVOLVE and that's going to continue to build over the course of the year and I think help us access a whole new group of physicians and patients. So we're as Omar indicated, we're really excited about the pain stim business and the strong market growth and how we're positioned within it.
Thanks. And a quick follow-up for Karen. With FX moving so much, maybe you could help us think about how it might impact the gross margin and the other income line and with higher interest expense run rate, what that might be for next year? Thanks.
Sure. So in terms of FX, with the recent movement over the last month in currency rates, we do now expect a bit of a headwind for the full year from FX on revenue, and I mentioned between $50,000,000 to $150,000,000 But I also mentioned the good news is that we still expect a positive impact from FX on our operating margin, on our EPS and on our free cash flow. And the key reason for that is our hedging program. Based on where rates are today, we do expect gains in our hedging program that shows up in our net other expense line item and positively impacts our operating margin. You had a second question, Robbie.
Will you remind me that one?
Just the
how FX impacts down the P and L and what interest expense might look like in the higher run rate?
Right. So on interest expense, obviously, interest expense the interest rates have been increasing. So we will have a modest impact from that on an interest perspective. On an interest income perspective, I did mention that we are focused on continuing to liquidate our overseas portfolio. And as we do that, we will have interest income coming down a little bit.
Thanks, Robbie. Take the next question, please.
Your next question comes from Isaac Ro of Goldman Sachs.
Good morning, guys. Thank you. A question on the 2019 op margin expansion guidance that you gave for that 60 basis points. If I think about your prior plan for that $3,000,000,000 in gross cost savings through 2022, could you help us understand kind of what's embedded in the 2019 guidance for margin expansion as it relates to that program? It'd be helpful to understand the pacing there and the net effect.
Sure. So when we gave our enterprise excellence when we announced our enterprise excellence program and talked about the over $3,000,000,000 in savings and leverage that that would deliver through 2022. We also said that we expected over $500,000,000 to $700,000,000 impact or positive savings and leverage annually each year. That is now embedded into our forecast. So that program is designed to offset pricing pressure, which we expect continued pricing pressure.
It is also intended to help ensure that we can continue to reinvest, particularly in R and D. And it is intended to drive operating margin improvement and expansion. And for next year, I mentioned we expect operating margin expansion of about 50 basis points pro form a constant currency.
Okay, got it. And then maybe just a follow-up question on a couple of product specifics, specifically on SCS. Omar, you called out the mid teens growth there, I think a little bit better in the U. S. And just trying to understand as we think about the sequential trend from here as Intelis ramps, do you expect that growth rate to accelerate on a year on year basis, trying to figure out kind of what's embedded there?
Thank you.
I think, Jeff, do you want to take that?
Yes, sure. Look, it's clearly off to a strong start. I caution you to not extrapolate continued further growth in terms of market share until some of this data comes out. The data that I mentioned a few minutes ago is going to take some time and that will, I think, drive incremental growth, but we do think it will maintain. This is a sustainable growth driver.
But in terms of acceleration, we really, I think, need to provide more data in order to accelerate that growth rate. But it is not a kind of a onetime glut. We do think this is going to sustain.
Okay. Thank you.
Thanks, Isaac. Next question please.
Your next question comes from Raj Denhoy of Jefferies.
Thank you. Anthony for Raj, maybe two product questions and then an operating margin question. Just to clarify on 670 gs share gains, is that from prior MDI patients or existing pumpCGM users? That's the first product question. The second would be on SPYRAL, you had data out at EuroPCR.
Maybe just a recap on why this program is different from the prior SIMPLICITI program and what the update on market opportunity is there? And then on operating margin, can you clarify that mark to market gains and losses on securities, how that could impact operating margin next year? And if the company is contemplating shifting that out of other income? Thanks.
Raj, with respect to the 670 gs, we are getting penetration of the 670 gs really across, I would say, patient population, certainly our own installed base, competitive conversions and MDI. So we are seeing all three. I think as you look forward though, we do expect more penetration within MDI because as the data comes in and now we have as you heard from the commentary 70,000 trained patients where the results are in line with the pivotal. As more of this data comes through and as physicians see this data, I anticipate we'll see even a greater penetration within MDI.
Mike, you want to take SPYRO?
As it relates to SPYRO, there are a whole bunch of things different about the data that were presented here, both the off med that was shown back at ESC last fall as well as the data shown yesterday at the PCR meeting. For one thing, the device is different. The HDN3 data was studying the FLEX device. This is spiral, which basically is targeting a different part of the anatomy, going more distal in the renal artery, which is where we're seeing congregation of the nerves that we're trying to denervate. So that has been an important contributor to the reliability of the denervation.
Number 2, the patient population is different. In the original study, we had mostly lone systolic patients, older patients involved who had very extensive, if you will, hardening of the arteries, which were less responsive to the treatment. So that by moving to a patient population that is actually a bit less sick but has both systolic and diastolic hypertension, we've seen a much higher response rate, which was shown in the HTN3 data and obviously has now validated here. In addition, we're using ambulatory blood pressure measurement as the basis for the analysis, which gets away from a lot of the white coat hypertension issues that we're showing. But probably the biggest difference here is that what's become clear is that patients are non compliant to their medications.
And we showed the data yesterday that basically 40% to 50% of patients who say they are taking medication are not taking the medication. We were able to validate that by looking at not only urinalysis but also blood levels. And it's very clear that, that was a huge confounder to the original HTN3 data in that it created huge variability in the statistics. And so by carefully factoring that out in our analysis, we were able to now show not only with the off med study was shown, but now with the on med study that was shown yesterday that we have not only statistically significant, but clinically significant reductions in the blood pressure levels. And so we are now rolling into the pivotal study using the adaptive Bayesian design, which means we're already 35% through the enrollment phase of the study for the pivotal trial.
So it's a very exciting program for us and something that we spent a lot of years fixing and now we're glad we're moving ahead with the pivotal trial.
That's great. Karen, do you want to take that?
And on operating margin, yes, I did mention we had some mark to market losses in the quarter. They were primarily related to the warrants that we own on Mazor. And yes, we are planning to shift mark to market gains and losses going forward into non GAAP reporting.
Thank you.
Thanks, Anthony. Thanks. Next question, Shelby.
Your next question comes from Bruce Nudell of SunTrust.
Hi, good morning. Thanks for taking my question. Omar, a question for you and then a couple of questions on products. So firstly, just looking at the midpoint of top line guidance next year, it's feeling like you're thinking developed markets for Medtronic will grow 2.5% to 3% and emerging markets more 12% to 15%. Is that the right way to be thinking about it?
And is that really the slowdown in developed markets really just due to the product introduction timings?
Emerging markets are in the double digits, and I think that's the way you should model it. I think we've got confidence in that. And then the remainder is the developed markets. So I think if you build the model out from that, that's the best way to do it. So we're pretty confident in the double digit emerging market as a baseline.
And then the swing will be in developed markets, which is usually driven by innovation cycles.
Okay. Thanks so much. And then, Jeff, just on the spinal cord stimulation, what's the internal confidence that the low kilohertz sub perception is really equivalent to 10 kilohertz and that waveform optionality is also very important to having durable long term pain relief?
Well, that's been our position and our data is proving that out that we believe that patients benefit over time from the optionality between high dose and low dose energy. And we're going to continue to do more and that's really the heart of our Evolv workflow, right? So one, just to make it simple, one, having the flexibility to toggle between high dose and low dose, we think over time produces the best outcomes. However, you need to provide physicians with a recipe for doing that so they can get consistent outcomes and mitigate complex patient follow-up. And that's our EVOLVE workflow.
And we're very confident in that, not just internally, but you're seeing external confidence building. I mentioned the VERDALIN data that we just talked about in a couple of scientific conferences recently and then our VECTOR's trial that we'll be rolling we'll be announcing the data on that in NANS in 2019.
And my final question is, SAPIEN three showed very good results extracted from the TBT registry and bicuspid patients. I'm pretty sure you guys have done the same sort of analysis. And could you just say how CoraValve is looking in that registry amongst bicuspid patients that, of course, important once a low risk label is garnered.
Yes, Bruce, I think we'll wait until we're prepared to show the data, but we are absolutely doing that analysis as the basis for an approval for bicuspid. And obviously, the rich data set of TBT is going to provide us the basis for being able to see what the effect is. But we are very optimistic about that analysis being supportive of seeing similar outcomes to what we see in the intermediate risk and higher risk groups.
Thanks so much.
Thanks, Bruce. Shelby, we'll take one more question, please.
Your final question comes from Steven Lichtman of Oppenheimer.
Thank you. Hi, guys. Just first question on Core Spine. As you mentioned during prepared remarks, the recent soft patch here is well known. Just wondering what your latest views on the market are, maybe most recent thoughts on the drivers of the growth challenge?
And do you think we could see a pickup? And if so, what would be the driver there?
Well, first of all, I'd like to say, look, for Medtronic Spine, I'm pleased with our performance against the softer market that you mentioned. We grew our spine business as reported 1%. And then when you combine that with our enabling technologies, which like things like spine navigation and robotics, we grew closer to 3%. So we believe this is definitely outpacing the competition. Now regarding the softer market, I mean, look, what we're seeing is that historically, the procedural growth has outpaced the pricing pressure for maybe a net 2% to maybe even 3% global market growth.
But in the last couple of quarters, those that procedure growth has softened and it has not outpaced the price declines, the price pressure. So you're seeing more of a flat to slightly down market. That's why I'm pretty excited about our performance. And that's been driven by in the spine, the core spine and biologics piece has been high single digit growth in BNP and our lateral approach called OLIF, strong double digit growth with our Prestige LP cervical discs.
And then we've got
a number of new product launches that are just starting to take hold, our Solera, our Voyager 5,560 fixation system, our Articel 3 d printed titanium cage. And then coming up here shortly, we've got an inferior Infinity posterior cervical system to market. So that's the whole speed to scale strategy of our core spine business. And then on top of that, our navigation, robotics, power tools, nerve monitoring, we all that together in it further integrating that and helping physicians use these tools to improve both clinical and economic outcomes, We believe that combined with our spine business is going to be growing 3% plus going forward. And the final thing I'd say that's helping our spine business maybe versus some others is our global exposure.
In China, for example, which is a big business for us, our spine business is growing 8%. So our OUS growth is stronger than our U. S. Growth and pulling up the business. So those three things, continued speed to scale of our product launches within Core Spine, enabling technology, improving clinical and economic outcomes and really differentiating us and helping our Core Spine business.
And then finally, the mix of OUS growth, particularly in our emerging markets. Those three things will help us grow faster than the market. And in terms of predicting the market, that's hard to do. We think it we don't think it's going to get much weaker. We do think maybe a slight uptick, but it's very hard to
predict that. Great. Thanks for that. And then just lastly, Karen, just a clarification on capital allocation in FY 2019. I mean, you were clear on the reduced interest income as you position the balance sheet post tax reform.
But are you assuming any uses of that freed up cash, whether through reinvestment in the business or enhanced buybacks beyond the $1,200,000,000 that you've previously talked about?
At this stage, we the liquidation of these assets properly will take some time. So we're not necessarily anticipating any large change in capital allocation other than what we've already communicated.
Okay. Thanks, guys.
Okay. So with that, thank you all very much for your questions. And on behalf of the entire management team, I'd like to thank you for your continued support and interest in Medtronic. We look forward to discussing our long range plan with you at our Investor Day, a week and a half from now on Tuesday, June 5. And we also plan on holding our next earnings call, the Q1 earnings call on Tuesday, August 21.
So thank you all very much.
This concludes today's conference call. You may now disconnect.