Medical device maker Medtronic is warning that the COVID-19 pandemic is dealing a significant blow to the company’s fiscal fourth-quarter earnings.
Medtronic, run from offices in Fridley, said late Tuesday that its weekly U.S. revenue started declining in mid-March and is now down about 60% compared with the same time period last year. Company stock dropped 1.6%, closing at $96.08 on Wednesday.
Although a handful of products like ventilators and pulse oximeters are seeing increased sales, the “vast majority” of devices are in overall decline because of the sudden drop in scheduled and emergency medical procedures, the company said in a statement. Hospitals are also deferring larger capital-equipment purchases as they seek to conserve the money they have on hand.
High profit margins and strong sales make the United States the most important market for Medtronic, accounting for a slight majority of the company’s $30 billion in annual revenue. But markets are affected worldwide.
Western Europe, which makes up 20% of Medtronic’s revenue, has seen weekly revenue declines of 20% to 30% in the past few weeks.
In China, which contributes 7% of Medtronic’s revenue, sales dropped 50% in the first part of the quarter and then moderated to only 20% to 40% down since the second week of March.
In the rest of the world, sales are down to varying degrees, with weekly revenue declines averaging 40% to 50% in the past few weeks.
Because Medtronic has continued spending on research and development and its sales force, while ramping up production of lower-margin devices like ventilators, company executives expect total profits to decline “significantly” more than revenue.
No specific estimate was offered.
However, company executives said in the statement that the company still has “ample liquidity” to fall back on, including $11 billion in cash and investments and an unused $3.5 billion credit facility. None of its public debt matures until March 2021.
“While the expected short-term impact to our financial results is significant, it is consistent with the impact discussion broadly across the medical device industry,” Medtronic President Geoff Martha said in Wednesday’s statement. “As hospitals begin to resume broader treatment of non-COVID-19 patients around the world, we expect our business to begin to recover as well.”
Martha is scheduled to become CEO of the company Monday, under a long-scheduled transition motivated by Medtronic’s mandatory executive officer retirement age of 65.
Outgoing CEO Omar Ishrak will become executive chairman.
The company noted that its COVID-19 effect may appear different on paper from other health care companies reporting earnings around the same time because of Medtronic’s unusual fiscal year, which ends Friday. Medtronic is scheduled to release its fourth-quarter earnings on May 21.