Medical device maker Medtronic PLC told investors Tuesday that the company plans to grow its $30 billion in revenue by about 4 percent per year organically, while earnings per share will grow at twice that rate in coming years.
Speaking at the company’s investor day in New York City, executives from Minnesota-run Medtronic said the diverse global manufacturer will hit revenue and earnings targets by investing in high-growth niches like leadless pacemakers and diabetes devices, while controlling costs by reducing manufacturing sites, centralizing back office functions, and other moves.
“We are spending more than $2 billion a year on R&D to invest in growth platforms that will sustain our growth for the future,” CEO Omar Ishrak said. “But as we do this, it is not just our ability to execute our pipeline successfully. It is also about allocating our investments to move our center of gravity to higher-growth end markets.”
Medtronic stock dropped 1 percent on Tuesday, closing at $86.66.
Two years ago, Medtronic reported revenue growth of about 5 percent. In the most recent fiscal year, the company had organic revenue growth of 4.6 percent. Looking ahead, the company told investors in an earnings call last month that it expects revenue growth of 4 to 4.5 percent for the 12-month period that ends next April.
For the long-term, Chief Financial Officer Karen Parkhill said the company is confident in its ability to deliver “at least 4 percent organic revenue growth every year.” That includes growth of 3 to 5 percent in large developed markets like the U.S., and low double-digit percentage growth in emerging markets around the world. (Organic revenue growth excludes the impact of acquisitions, divestitures and international currency shifts.)
The key is to focus on innovative and even disruptive technologies, Ishrak said. He recounted how Medtronic disrupted the $3 billion market for pacemakers in 2015 when it introduced the Micra, a pacemaker that fits entirely inside the heart. Today’s Micra is a basic pacemaker useful to less than a quarter of all pacemaker patients, but technology advances will soon expand that figure.
“Within the next two years, we expect Micra to serve the majority of patients,” Ishrak said. “I think it’s quite incredible that this company, that invented the external pacemaker in 1958, the technology that Medtronic was founded on, is the same company to develop a product like the Micra and disrupt itself. But that is the bar we set for ourselves. And at Medtronic that is our biggest priority, to look at markets in this way. And that is the kind of company we are becoming.”
Revenue from diabetes devices is expected to grow faster than the company average, as Medtronic capitalizes on its novel, self-adjusting MiniMed 670G insulin pump and wider dynamics in the market that favor Medtronic.
But hitting the target of at least 8 percent growth in earnings per share will require more than just 4 percent sales growth.
Parkhill told investors that Medtronic is already deep into a companywide “Enterprise Excellence” operational-efficiency program announced earlier this year.
The program will integrate global operations more efficiently, evolve Medtronic’s global functions for long-term growth, and optimize the company’s commercial side while improving customer service.
For example, the roughly 70 manufacturing sites that Medtronic operates today will drop to about 55, which is down from a peak of 92 several years ago. More contract manufacturing will be used, while internally, lean manufacturing techniques can improve labor productivity and space utilization by 25 percent, Parkhill said.
“It’s important for you to know that Enterprise Excellence is not just a slogan or a feel-good branding campaign,” Parkhill said. “Rather, it is increasingly embedded — it is a discipline and mind-set throughout Medtronic, designed to deliver sustainable cost-efficient ways of doing business.”