CEO: Medtronic's focus paying off

  • Article by: JAMES WALSH , Star Tribune
  • Updated: August 23, 2012 - 9:08 PM

The company must move beyond making devices, Omar Ishrak said, to providing technology and services across health care.

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Omar Ishrak

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After a solid last year and last quarter, Medtronic Inc. CEO Omar Ishrak on Thursday reiterated his company's commitment to growth through globalization, innovation and enhancing value during Medtronic's annual shareholders' meeting in Fridley.

If the themes sound familiar, well, they are. It's what Ishrak has consistently preached in the year-plus since he took the helm at the world's largest medical device company. His point on Thursday was this: that focus is more than words, it's an action plan beginning to bear fruit.

"So, what do these changes mean for you, our shareholders?" Ishrak asked the several hundred people seated in Medtronic's headquarters -- and thousands more watching the webcast. "Well, for a start, we think our attention to these areas is beginning to have a positive impact on our financial performance."

Consider: 44 percent of Medtronic's business now occurs overseas. Medtronic had $16.2 billion in revenue in fiscal 2012, but U.S. revenue declined slightly. By comparison, emerging markets in China and India are growing 22 percent and 21 percent, respectively.

In all, emerging markets -- considered those outside of North America and Europe -- now comprise 10 percent of Medtronic's revenue and, Ishrak said, that will be 20 percent "in a few years."

Said Ishrak: "As a result, we're increasing our investments in emerging markets, and we expect this part of our global portfolio to continue to deliver sustained double-digit growth."

That does not mean that domestic sales of "premium products" are not pivotal to success, Ishrak said. New products here are helping Medtronic increase market share.

But, especially in the area of increasing value, future success in the United States will not only rely on the launch of new products. It will also depend on increasing the value of Medtronic products and services to a base of customers that includes the people responsible for paying the bills, for purchasing devices and for managing patient care from admission to outpatient follow-up visits. Medtronic must prove the value of its technology and services in managing and reducing overall health care costs.

In the area of innovation, Ishrak talked about a new focus in research and development. While Medtronic spends more than 9 percent of its revenue on research and development, Ishrak said the company is working to be smarter about it -- cutting the number of overall projects while putting more money into those efforts deemed most likely to succeed.

It appears to be paying off for investors. Medtronic saw its fiscal 2012 earnings per share rise 19 percent.

Wall Street, Ishrak said, also appears to like what it's seen. "Our performance over the past year has been relatively well-received by the financial markets," Ishrak told shareholders. "Through yesterday, our stock had appreciated by 20 percent since our shareholder meeting last year."

On Wednesday, Wells Fargo & Co. analyst Kevin Strange said in a note to investors that Medtronic's fiscal first-quarter results beat many estimates and that its organic growth was "encouraging."

Thomas Gunderson, a senior analyst who focuses on medical technology for Piper Jaffray & Co., said the future of medical technology is moving beyond devices and into networks and systems -- to monitor patients' hearts and blood-sugar levels and to encourage healthy behavior.

Medtronic, he said, appears to be one of a growing roster of players on that landscape. When told of Ishrak's statements Thursday, Gunderson said Medtronic's transformation will take time.

"There is a lot to do," he said. "It's probably a three- to five-year program before we can see any evidence on the bottom line."

Still, Gunderson said, it appears that Ishrak "is making progress."

Ishrak told shareholders Thursday that transforming Medtronic beyond its device-maker roots "won't be easy, but we believe it is critical, and that our future depends on it. The foundation and the fundamentals of this company are strong. And, through our efforts, we will become stronger."

James Walsh • 612-673-7428

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