With sales down in key businesses, Medtronic Inc., the world's biggest medical technology company, said on Tuesday that it will eliminate up to 2,000 jobs -- roughly 4 to 5 percent of its global workforce of 41,000 employees. Officials at Medtronic were unsure just yet how that would affect the company's 8,000 employees in Minnesota.
But the company's biggest business -- Mounds View-based Cardiac Rhythm Disease Management --is among its most-troubled. In the third quarter, sales of the unit's heart defibrillators and pacemakers declined 2 percent, to $1.2 billion. And if any administrative or back-room operations are slated for trimming, employees at the company's Fridley headquarters may be targeted as well.
The news comes at a time when a slow economy and uncertainty over the way doctors use some medical devices, how patients pay for them and how regulators approve them weigh heavily on med-tech companies.
"Basically you have no growth in [Medtronic's] core businesses -- the company is starving for growth" said Phil Nalbone, an analyst with Wedbush Securities.
Though Medtronic touted several promising devices that were either recently launched or in its pipeline, Nalbone predicted that "it's going to be a tough couple years for Medtronic." Other analysts agreed, noting that the company also narrowed its full-year earnings forecast, a sobering harbinger of what may lie ahead.
At the same time, Medtronic continues to search for a new chief executive officer to replace William Hawkins, 56, who announced in December that he plans to retire. That news surprised many on Wall Street.
On Tuesday, Hawkins told Wall Street analysts that the otherwise-routine earnings conference call would be his last.
"I feel extremely proud of what we have accomplished over the past several years," Hawkins said. "When you take into account our robust pipeline, our outstanding leadership team and our ability to capture new opportunities in emerging markets and emerging technologies, I could not be more excited for the future of this great company."
New products include treatments for spine ailments, aortic aneurysms and the heart condition atrial fibrillation, plus a pacemaker that is compatible with MRI scans.
While these devices will help bolster market-share losses and declining margins, Collins Stewart analyst Tao Levy said that "new products ... will take some time to ramp up."
An external hire
Deploying new products and guiding that pipeline will be up to the new chief executive. Aaron Vaughn, an analyst with Edward Jones, said he would be "shocked" if Medtronic didn't have a new CEO in place by the close of its fiscal year in late April. (Medtronic has said the new CEO will be an external hire.)
Overall sales for the quarter ended Jan. 28 declined 3 percent, to about $4 billion. Earnings were $924 million, or 86 cents a share, compared with $831 million, or 75 cents a share, the same period last year.
Analysts were expecting the company to earn 84 cents a share. Leerink Swann analyst Rick Wise wrote in a note to investors on Tuesday that although Medtronic beat Wall Street expectations by a few pennies, that performance "was driven almost wholly by a much lower-than-expected tax rate." Medtronic's shares closed on Tuesday at $40.21, down $1.06.
Certainly the big news on Tuesday was the company's announcement that it will reduce its workforce by 4 to 5 percent, or 1,500 to 2,000 positions, through voluntary separations and layoffs. In addition to its headquarters and cardiac rhythm unit, Medtronic's neuromodulation business is based in Minnesota. Medtronic pared its worldwide workforce in 2009, as well, but spokesman Brian Henry said Minnesota employment levels have remained constant at the 8,000 mark for the past several years.
Janet Moore • 612-673-7752