UPDATE: May 27, 2022: Medtronic expects the supply chain problems that affected its business at the beginning of the year to continue into next quarter. For its fiscal first quarter, the company forecasts a 4.5% to 5.5% year-over-year decline in organic revenue.
This assumes no near-term improvement in the supply chain, and a $350 million to $400 million impact from foreign exchange rates, BTIG analysts wrote in a Thursday research note.
The company also forecast a year-over-year revenue decrease in each of its business segments, including:
- Cardiovascular: down 1%-2%
- Medical surgical: down 7.5%-8.5%
- Neuroscience: down 5%-6%
- Diabetes: down 8%-10%
These numbers don’t factor in Medtronic’s recent acquisition of Intersect ENT.
For its 2023 fiscal year, Medtronic expects its revenue to increase by 4% to 5% on an organic basis. J.P. Morgan analysts wrote that “this bakes in a much softer than expected” fiscal first quarter, with most of the acceleration happening in later in the year.
“On the macroeconomic side, the company has started to see signs of improvement on its most acute issues and total company supply headwinds should abate over the next quarter or two, with headwinds to Surgical Interventions likely to persist through the first half of the year,” they wrote in a Thursday research note.
This forecast does not include clearance of its MiniMed 780G insulin pump, which is under review with the Food and Drug Administration. Medtronic is still addressing concerns from an FDA warning letter to its diabetes group.
Analysts didn’t interpret Medtronic’s results as a signal for other medtech companies, many of which have been managing through the current supply chain environment.
“The supply challenges bring into question operational and supply chain execution that we have previously called out as an area where [Medtronic] still has more to do, especially as most other companies did not call out accelerated headwinds,” analysts with RBC Capital Markets wrote in a Thursday research note.
Dive Brief:
- Medtronic said fiscal fourth-quarter sales fell 1% to $8.1 billion, hurt by supply chain challenges. CFO Karen Parkhill said in an investor call on Thursday that the medical technology company brought in about $350 million less than it had forecast for the period.
- In addition to supply chain issues, Parkhill also listed COVID-19 lockdowns in China and foreign-exchange rates as other factors affecting Medtronic’s revenues in the quarter.
- Separately, Medtronic announced plans to launch a joint venture with DaVita. It shared a few details about the yet unnamed company, which will focus on developing new kidney care products including home-based dialysis products. Medtronic and DaVita would each put an equal equity stake into the new company.
Dive Insight:
Medtronic CEO Geoff Martha told investors that procedure-volumes reached pre-COVID levels by the end of its last quarter, which closed April 29, but “there were also some unexpected challenges, more than I would have liked, which caused us to come up short of our expectations.”
Martha said that the supply chain problems worsened in the second half of the quarter, affecting its surgical innovations unit the most, which includes products for laparoscopic surgery and robots. Shortages of semiconductors, resins and tray packaging contributed to the problems.
“There was a catastrophic explosion in our supply chain,” Martha said. “And so those last two ones, the packaging and the resins, were the biggest issues, the biggest supplier de-commits, and I'd say the biggest surprise.”
The CEO told investors about supply chain changes the company is making to its global supply chain, including hiring a former Walmart executive in March to lead those efforts. Martha added that Medtronic’s global supply chain was “set up for a different era, and we had to make those changes. And unfortunately they haven't fully taken hold yet; they need more time to mature.”
For the full fiscal year, Medtronic’s revenues increased 5% to $31.7 billion. On an organic basis, sales gained 5%, which fell short of its forecasted 7% to 8% organic growth in fiscal 2022.
The company announced an 8% dividend increase on Thursday to $2.72 per share.
Medtronic's fiscal year 2022 earnings by segment
| Segment | Revenue | Year-over-year increase / decrease |
|---|---|---|
| Cardiovascular | $11.4 billion | 6% increase |
| Medical surgical | $9.1 billion | 5% increase |
| Neuroscience | $8.8 billion | 7% increase |
| Diabetes | $2.3 billion | 3% decrease |
SOURCE: Medtronic's 2022 earnings.
Medtronic’s leaders spent most of Thursday’s call answering questions about the company’s performance, but they elaborated a little bit on the joint venture with DaVita. Medtronic will contribute its renal care solutions business to the combined company, including its product portfolio, product pipeline, manufacturing R&D teams and facilities.
“A big piece of the value creation will be us bringing some innovative home dialysis technologies to the market,” Martha said.
DaVita would help with the go-to-market and access to customers as well as bring its clinical expertise to the joint venture, the CEO added. The deal is expected to close in the next year.
In a Thursday research note, J.P. Morgan analysts wrote that at 1% of sales, the joint venture is “unlikely to move the needle.”
Medtronic’s stock fell 5% as of 12:06 p.m. ET on Thursday. Stifel analysts noted Medtronic's revenue results could pressure shares of other medtech companies.
