Medtronic shares dip as CFO signals revenue hit from last month's system outage

A worldwide computer outage at Medtronic PLC last month will hurt its quarterly revenue by a modest amount, a top executive said Monday, but its profit will remain within expectations.

Medtronic CFO Karen Parkhill told Bloomberg News that the outage made it more difficult for the Minnesota-run company to process and ship orders and that some revenue for the May-through-July period would be delayed until the following quarter.

Parkhill also noted that a shortage of glucose sensors for a popular insulin pump would also dampen revenue in the current quarter, the first of Medtronic's fiscal year.

A Medtronic spokesman later emphasized that the company's revenue performance should still fall within the lower end of its revenue guidance, which was for growth of 4 to 5 percent from the $7.2 billion in last year's first quarter. Executives still expect per-share earnings growth to be "at the upper end of the high-single-digit range" on a constant-currency basis.

Medtronic stock dropped nearly 3 percent Monday, closing at $86.06. Medtronic is expected to announce first-quarter results Aug. 22.

The Star Tribune reported June 22 that Medtronic experienced a global outage of a foundational IT system used to track manufacturing, customer orders and order fulfillment. That forced employees to take extra shifts to meet the extra demands of manually filling orders. Sources at the company said the system went down on June 19 and came back online around June 24.

"Rest assured we are working with our IT vendors around the clock to restore these systems and resume normal operations," Medtronic CEO Omar Ishrak wrote in an e-mail to employees at the time. "We also recognize that this will have an impact on our customers and employees. We will all need to step up and commit ourselves to ensure our customers and patients are served with product as expeditiously as possible as our systems are restored."

The company declined to address specific questions about the logistics behind fulfilling urgent patient orders globally without a working enterprise system, "as we view these types of details regarding our operational approaches and customer engagement practices in these instances to be confidential to Medtronic," Vivanco said via e-mail.

On Monday, J.P. Morgan Securities analyst Michael Weinstein wrote in a note to investors that the dent in sales was "disappointing but not derailing" to financial models for the quarter.

"The Street was already aware of the Medtronic network crash, but was hoping the company would have enough time to make up the impact," Weinstein said in the note.

"Luckily it was a slower mid-quarter week, [but] at this point it's unclear whether the company will be able to recoup the full amount of the lost sales."

Although "ransomware" cyberattacks affecting major corporations have made headlines in recent weeks, Ishrak's note said there was "no indication" that the problem that brought down its order-fulfillment system was related to any outsider and there was no sign of a data breach.