As hospitals redirect resources toward COVID-19 and patients put off less-urgent medical procedures and trips to the doctor, Medtronic has seen serious impacts on its bottom line—including a 60% drop in weekly revenue from the U.S., where the medtech giant does most of its business.
Delivered weeks ahead of its next scheduled earnings release, with the fourth quarter of the devicemaker’s fiscal calendar wrapping up April 24—and just days before CEO Omar Ishrak is due to retire—the company’s update offered some details on which therapy areas have been hit the hardest.
This could also be a sign of bad news to come from other medtech manufacturers, as the timeframe of Medtronic’s fiscal quarter captured more of the recent effects of the spreading coronavirus pandemic, compared to companies that closed their books at the end of March.
Medtronic said the vast majority of its businesses have seen declines in sales as a result of COVID-19. Though the global need for ventilators continues to reach new heights—plus high demands for patient monitoring devices, diabetes supplies and other life support products, such as ECMO machines—these areas previously represented only about 10% of the company’s revenues before the pandemic, and they typically carry a low margin.
Elsewhere, many of Medtronic’s products fall under more elective procedures: such as atrial fibrillation and ablative solutions, bariatric and spine surgeries, and the purchase and setup of new insulin pumps, the company said. At the same time, hospitals and government agencies have been deferring the purchases of capital equipment.
In Western Europe, which brings in about a fifth of the company’s revenues, Medtronic said it started seeing about 20% to 30% declines in weekly revenue, beginning the week of March 23, outside of the impacts from customers buying in bulk.
Similar drops began happening earlier in China, which made up 7% of global sales. During the week of March 9 revenues dropped by about half, year-over-year. Slow recoveries in the markets lessened those declines in the weeks since, to about 20% to 40%.
Despite all this, Medtronic said it will continue to fund its R&D and sales forces—and seek to weather the storm with the company’s $11 billion in cash and investments—in addition to “running many of its factories at or near full capacity,” to keep stocks up in anticipation of an eventual rebound of procedures and sales. Medtronic’s full fourth-quarter earnings release is scheduled for May 21.
“While the expected short-term impact to our financial results is significant, it is consistent with the impact discussion broadly across the medical device industry,” said President Geoff Martha, who is set to take over as CEO from Ishrak, starting April 27.
“Importantly, we are starting to enter the early stages of a global recovery,” Martha added. “As hospitals begin to resume broader treatment of non-COVID-19 patients around the world, we expect our business to begin to recover as well.”
Ishrak will move into the newly created role of executive chairman, following his nine years as chief of the company, and after being Medtronic’s first external hire for the CEO role in 26 years.
He will also maintain his position as chairman of the board of directors and will focus on advancing select technologies within the company’s portfolio.