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 the 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.
