November 28, 2020

Medtronic CEO says business is recovering faster than expected

Medtronic has published no formal guidance on what investors can expect in the next six months, but executives have been projecting confidence that the medical device maker is ready to capitalize in a down market.

In a telephone interview ahead of a company investor presentation Wednesday, Medtronic CEO Geoff Martha said health care markets in the U.S. and Europe have been recovering from the COVID-related slowdowns faster than expected.

The result is that Medtronic could return to a normal level of growth in revenue and profits by January, Martha said. That’s an upgraded outlook since August.

“We … told investors on our earnings call in August that we would be back to our normal level of growth, that single-digit revenue growth, and our normal level of profitability, by the end of our fiscal year in April 2021. But things are moving faster and improving even better than what we thought,” Martha said.

Wednesday’s biennial presentation of upcoming products and market strategies for investors was originally scheduled to happen in June, but was postponed because of the pandemic.

At the virtual presentation, Martha and company executives will talk about the company’s “pipeline” of new and upcoming products, as well as a few operational changes under Martha’s young tenure as CEO that are intended to speed the medical-device maker’s innovation and commercialization.

Medtronic, based in Dublin, Ireland and run from offices in Minnesota, had more than 90,000 employees around the world as of April, and expectations to take in at least $29 billion in sales of everything from pacemakers and stents to spine-surgery robots and stimulators to treat chronic pain.

The company greatly expanded its reach and operations with a $49.9 billion acquisition of Ireland-based medical supplier Covidien in 2015, but has been working ever since to pay down its debt, streamline operations and optimize its global footprint. Martha served as Medtronic’s chief integration officer for the deal.

He also headed up the company’s restorative therapies group, home to many of the pipeline devices he talks about publicly, before taking the reins as company CEO in April.

One of his key talking points Wednesday is a set of internal changes intended to let individual operating units around the company get more nimble and competitive.

The idea is to decentralize and simplify the company’s organization so that decisions can be made faster and with better execution. Under Martha, the company is also investing in offerings in faster-growing markets like robotics, diabetes, neurostimulation and ischemic strokes.

“With the products coming out now, and the products in our pipeline coming in the next 24 months, and with some of the changes we are making in the company really centered around innovation, we feel that we can sustain a higher level of growth,” Martha said in the interview ahead of the investor presentation.

Martha said investors have told him that what they want most from Medtronic is higher and more consistent growth. He acknowledged the company has been “spotty” in the past in consistently attaining higher levels of growth.

Revenue of $29 billion in Medtronic’s most recent full fiscal year, which ended last April, represented a decline of 5% compared to the prior year. The year before that, revenue rose 2%. Before that, it rose 0.8%. None of those figures is adjusted for international currency fluctuations.

Revenue has been down throughout the pandemic, but it grew sequentially each month between April and August, giving executives reason to think the financial impact will be limited to about one fiscal year.

But competitors who don’t have the benefit of Medtronic’s balance sheet or product pipeline may find the impact longer-lasting, giving Martha confidence that the company ought to be able to gain market share in just about every product niche it competes in.

“At the end of the day, this will have been from a financial standpoint, a yearlong impact on revenue and lower profitability, because we didn’t really change our expense base even though our revenue came down. And it chewed up some cash. But given our healthy balance sheet, we were able to absorb it,” he said.

 

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