Medtronic Plc (NYSE: MDT), is among the world’s largest medical technology, services and solutions companies, headquartered in Dublin, Ireland, including services such as pain alleviation, health restoration and extending life for millions of people around the world. The medical device maker has warned a significant drop in sales of the current quarter. The reason being people in the USA forced to delay less urgent surgeries due to the COVID-19 pandemic. This being a concern as Pre-COVID-19, USA comprised approximately 53% of the company’s total revenue.
As the coronavirus outbreak put excessive pressure on the healthcare industry to treat with the affected people. The federal and state guidelines have asked elective surgeries like knee and hip replacements and certain heart procedures to be delayed. Resulting in a demand for devices used in these procedures to decline.
Revenue across the world’s largest standalone medical device maker’s segment fell in the fourth quarter. But the heart devices unit has taken the biggest hit for them as customers lowered bulk purchases. Hence, sales in this unit, that accounts for 1/3rd of the total sales, fell to $2 billion. This is a 34.3% drop from the last quarter. Current expectations are for the first-quarter revenue growth to be even worse than that of the fourth quarter.
Results for the quarter
On Thursday, the company reported net sales of $6 billion in the quarter which is a decline of 26%. They had a net income of $646 million or 48 cents per share in its fourth-quarter down from $1.172 billion or 87 cents a share in the earlier year. This is a decline of about 44.8%. These numbers were in line with the update provided by Medtronic on 21st April.
Medtronic’s fiscal year 2020 revenue of $28.913 billion decreased 5.4 percent, or 4.2 percent on an organic basis, adjusting for the $418 million negative impact from foreign currency. As reported, fiscal year 2020 net earnings were $4.789 billion or $3.54 per diluted share. As detailed in the link at the end of this release, fiscal year 2020 non-GAAP earnings and diluted earnings per share (EPS) were $6.206 billion and $4.59, respectively, decreases of 12.5 percent and 12.1 percent, respectively.
Problems faced by the MedTech industry
MedTech has played quite a significant role in the struggle against the COVID-19 pandemic. But the stocks of many major medical device companies fared about as poorly as the overall market. The reason being delays in the elective surgeries that hit the demand for medical devices. The effects were seen throughout the world but the severely effected countries stood out. As the elective surgeries in hard-hit China and Italy plummeted by 85% to 90% in February and March.
This even had a big effect on demand for some medical devices sold by Johnson & Johnson (NYSE: JNJ). J&J cited COVID-19 as a factor in falling demand for hip, knee, spine, and trauma devices.
Underlying sales at Smith & Nephew (LON: SN) fell 47% in April amidst the COVID-19 pandemic as the non-urgent procedures in the U.S. gets delayed. There was also a sharp drop in sales in the U.S. and the U.K. in the second half of March, and low revenue in China throughout most of the quarter.
The Dublin-based company expects to make a slow recovery in its heart device unit, which sells valves and restorative therapies unit housing neuro-stimulation implants to treat chronic pain. Additionally, the sales of products that are more urgently required by the patients like pacemakers used to control abnormal heart rhythms, have started to recover.
Medtronic is seeing early signs of recovery in some parts around the globe. Also, they are expecting to return to a more normal revenue growth by the end of the financial year 2021. Potentially, some good news for the device makers as many analysts’ project that revenues lost during the down period, however long it may last, will be waiting on the other side.
The medical device maker announced that on May 20, 2020, that the board of directors approved an increase in cash dividend for the first quarter of fiscal year 2021. Raising the quarterly amount to $0.58 per ordinary share. This would render into an annual amount of $2.32 per basic share, an increase from the prior $2.16. Hence, marking the 43rd consecutive year of an increase in the dividend payment for Medtronic, a constituent of the S&P 500 Dividend Aristocrats index. Including this, the company’s dividend per share has grown over 50 percent over the past 5 years. It has grown at a favorable 17% compounded annual growth rate over the past 43 years.