Dive Brief:

• Medtronic on Tuesday announced second quarter revenue of $7.8 billion, an increase of 2% on an organic basis, missing the consensus Wall Street forecast of about $8 billion.
• On a conference call, CEO Geoff Martha said the company's revenue was negatively impacted by a COVID-19 resurgence and healthcare system staffing shortages, particularly in the U.S. Martha told investors procedure volumes were "lighter than expected" in markets where Medtronic's products are "used in more deferrable procedures like our spine business" and those that "require ICU capacity" such as transcatheter aortic valve replacement procedures.
• Medtronic reduced its fiscal year 2022 revenue guidance, with organic growth now expected to be approximately 7% to 8%, down from the previous 9%. CFO Karen Parkhill told investors that, while the company is seeing an improvement in November procedures, it expects the pandemic to continue to affect markets in the second half of its fiscal year. "We wanted to err on the side of caution with near-term guidance given the dynamic macro environment," Parkhill said, noting that in the third quarter Medtronic expects 2% to 3% growth. "That equates to a slight deceleration from what we saw in October."

Dive Insight:

Medtronic's results demonstrate that the company, like other medtechs, continues to feel the negative impacts of the pandemic on elective procedures. The sector's recovery is impeded by industry-wide challenges, including healthcare staffing shortages and global supply chain constraints.

"The lingering effects of the pandemic combined with healthcare system staffing shortages impacted our Q2 revenue more than we originally anticipated," Martha told investors Tuesday. "As these issues drag on, it becomes more challenging" to predict when they might ease.

COVID-19's effects on Medtronic varied by region. While the U.S. market took the brunt, international markets performed better.

Medtronic's U.S. second quarter revenue was just under $4 billion, a 1% increase, while emerging markets revenue came in at roughly $1.4 billion, a 16% increase on an organic basis.

The company's stock price was down by over 2.5% when the market opened Tuesday.

Parkhill noted Medtronic saw improving trends in its average daily sales each month of the second quarter as COVID-19 hospitalizations declined. However, the CFO said the recovery in the U.S. "wasn't as fast as we had expected or had seen in prior waves" adding that Medtronic's second-quarter performance is "in line with what we're seeing from our peers."

Medtronic is the latest medtech to see an impact from COVID-19's resurgence.

Johnson & Johnson kicked off the earnings season last month reporting "reduced medical staffing" as a factor that is "constraining procedure volumes." Stryker similarly cited healthcare staffing when it cut its full-year growth target at the end of October, reflecting the effect the situation is having on its implant business.

Healthcare staffing shortages will persist but Martha contends hospitals are "doing a good job managing the headwinds they have." While the duration of the COVID-19 headwinds is hard to predict, Martha said Medtronic expects its markets to recover as the majority of its businesses are winning market share.

Medtronic's cardiac rhythm management business gained over a point of market share year over year. In respiratory interventions, the company picked up four points of share by responding to spikes in demand from the COVID-19 resurgence and in the neuromodulation business won share across its product lines.

However, despite these gains, Medtronic has a number of businesses that are flat or losing ground, including cardiovascular diagnostics, revenue from which declined in the mid-single digits as procedure volumes were impacted. In addition, cranial and spinal technologies revenue of about $1.1 billion was down 1% organically due to decreased spine procedures as a result of COVID-19.

While diabetes revenue of $585 million was up 1% on an organic basis in the quarter, Medtronic continued to lose market share.

Medtronic's challenges in launching its Hugo robotic surgery system continue. The company had to delay the launch last year due to the pandemic, and Martha told investors Tuesday that Medtronic is not making the progress it had planned for.

While the Hugo soft tissue system last month received CE mark in Europe, Martha said sales this fiscal year are "likely to come in below our $50 million to $100 million target" adding that "we're off schedule but we're not off track" as Medtronic continues with its regulatory filings and soon expects to start a U.S. investigational device exemption.

Martha admitted that Medtronic underestimated some of the supply chain and manufacturing issues in a complex program like Hugo.

"That's on us," the CEO said. "We should have probably provided a little bit more cushion there."