Medtronic to Cut 5% of its Workforce, Shed External Defibrillators Unit
Medtronic Inc. said it will cut 1,500 to 2,000 jobs and renew efforts to divest a unit that makes external defibrillators that shock a heart into normal rhythm as sales of implanted devices continue to stagnate.
The company will cut 4 percent to 5 percent of its employees with voluntary programs and layoffs, Minneapolis-based Medtronic said in a statement. It also revived plans to sell or spin off the Physio-Control Inc. unit that makes emergency response gear and portable heart devices three years after quality issues led the company to halt sales.
Revenue from pacemakers and defibrillators, Medtronic’s biggest products, fell 2 percent in the three months ended Jan. 28. Sales of new devices, such as heart valves and stents for aortic aneurysms, rose and boosted company revenue 3 percent to $3.96 billion. Net income increased 11 percent to $924 million, or 86 cents a share, from $831 million, or 75 cents, a year earlier. A low tax rate helped profit beat the 83-cent average estimate of 25 analysts surveyed by Bloomberg.
“We obviously are seeing our pretax earnings are not where we need them to be,” Chief Financial Officer Gary Ellis said in a conference call. “In these little bit slower markets, we’ll have to take some cost out. That’s what we’re attempting to do and getting ahead of the game.”
Profit Margins
Physio-Control’s profit margins are some of the lowest in the company, making it hard for the unit to keep pace with other technology being developed by Medtronic, Ellis said. The unit, which resumed shipping products worldwide last year, will do better on its own, he said.
Medtronic’s shares fell $1.06, or 2.6 percent, to $40.21 at 4:00 p.m. in New York Stock Market trading. The shares decreased 7.9 percent in the past 12 months.
The company’s ability to beat analysts’ expectations was driven almost entirely by a lower tax rate, said Rick Wise, an analyst at Leerink Swann & Co. in New York, in a note to investors today. The company’s tax rate was 11.8 percent in the quarter, compared with Wise’s 18 percent estimate, which he said added 7 cents to earnings per share.
The device maker narrowed its earnings forecast for fiscal 2011 to $3.38 to $3.40 a share, the lower end of the range projected on Nov. 24. The company twice cut its earnings outlook for the year.
“It is never easy to make these decisions, but we believe this is the right thing to do for Medtronic to position the company for long-term growth,” said Chief Executive Officer William Hawkins on a conference call with investors today.
Management Changes
Hawkins announced his retirement in December and plans to step down at the end of the fiscal year in April. The company also acquired Osteotech Inc., maker of human bone and bone tissue products, and Ardian Inc., which makes an experimental device to lower blood pressure, during the quarter.
Medtronic initially announced its plans to spin off Physio- Control in 2006 when it was the world leader in the $1 billion market for the equipment used by emergency workers and bystanders to treat cardiac arrest. The quality problems that arose in 2007 led the company to halt its plans to turn the unit into an independent public company. Now that the unit has operated effectively for the past year, it’s time to act, Ellis said.
To contact the reporter on this story: Michelle Fay Cortez in Minneapolis at mcortez@bloomberg.net
To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net
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