Medtronic is eliminating 2,000 jobs worldwide, including 500 in Minnesota, in a move that is part of an industry trend to consolidate and shed employees in struggling markets.
The Fridley-based manufacturer must shift resources from areas that are slow performing to those that are seeing more impressive growth, such as technology to treat chronic pain, said Omar Ishrak, Medtronic’s CEO. Most of the company’s cuts are in its cardiac and spine businesses, areas hit hard by pricing pressures and sluggish sales.
“These are never easy decisions but are necessary,” Ishrak said.
In annoucing the decision Tuesday, executives at Medtronic, one of the world’s largest medical device companies, said the layoffs are expected to save up to $225 million a year.
“I think this highlights some of the pressures within the industry,” said Jeff Windau, an analyst with Edward Jones. “Pricing and competition have been tough and expenses continue to rise. It doesn’t look like those trends will be changing soon.”
Josh Hill, senior portfolio manager and co-director of equities with the Windsor Financial Group, which has held Medtronic stock since the ‘90s, said Medtronic is a different company today than the one that made its fortunes treating the human heart.
The cardiac market is “a very difficult market,” he said. “At the end of the day, it is still their slower growing business.”
About half the jobs are being eliminated in the United States and some 65 percent of the cuts have already occurred, Medtronic said. Included in the job losses are 230 positions from Memphis-based spine operations that the company confirmed earlier this month.
The rest of the cuts are expected to happen in fiscal 2014, said Medtronic spokeswoman Cindy Resman.
The company employs 45,000 people worldwide and about 8,000 in Minnesota. Resman noted that the company has created about 160 new Minnesota jobs and has about 130 Minnesota job openings listed, so the net loss will be fewer than 500.
“We are growing in some areas and making changes in others,” Resman said. “Our employee population numbers have been relatively flat.”
The news comes nearly a year after Medtronic announced 1,000 job cuts worldwide in the midst of a funk in the business of fixing hearts and regulating heartbeats.
Flat revenue and a decline in cardiac procedures in the United States and Europe have contributed to similar moves by Medtronic’s competitors over the past year. Last August, St. Jude Medical announced it was eliminating 800 jobs; Boston Scientific confirmed plans to trim 1,000 jobs from its worldwide payroll.
Revenue, stock price rise
Yet on the same day it confirmed the cuts, Medtronic reported unexpectedly strong fiscal fourth-quarter and full-year earnings in its Cardiac and Vascular Group.
Revenue for the group, which includes implantable pacemakers and defibrillators, was up 5 percent over the same quarter last year.
That news helped push up the company’s stock price nearly 5 percent, to more than $52 a share.
It’s the first time in at least a couple of years that the heart businesses have shown decent gains. Analysts admit they didn’t quite see this one coming.
“The market is definitely excited about the results,” Windau said. “Overall, it was a very impressive quarter for them.”
Medtronic’s adjusted fourth-quarter earnings were up 8 percent to $1.12 billion. Revenue was up 4 percent to $4.46 billion.
Ishrak, while pleased with the strong quarter, was not quite ready to say that Medtronic’s heart business has turned the corner. Two years ago, he said, the heart device market in the United States was down 10 percent.
“When we compare this to the conditions we had two years ago, compared to that, flat year-over-year performance looks pretty good,” he said. “It clearly is an improvement.”
‘A wild card’
Officials discussed the job cuts Tuesday morning after mentioning during the company’s quarterly earnings conference call that Medtronic is taking a $182 million net restructuring charge.
Ishrak credited new products — as well as the company’s ability to convince hospital officials that partnering with Medtronic can improve efficiency — for the improved numbers. He said he wants to see a string of several good quarters before declaring a cardiac business turnaround.
“Health care reform is a wild card. There are uncertainties out there,” he said. “If we can position ourselves as a company that provides solutions, we can show sustained growth.”
Windau said Ishrak’s caution is understandable. The job cuts are proof that the industry is still facing uncertainty, he said.
“When we look at the broad, macro picture and all the competitors still struggling, we have to be cautious,” he said.