Medtronic Inc. Chief Executive Officer William A. Hawkins, 56, will retire next April, ending a three-year tenure that analysts said was marked by disappointing sales from the medical-device maker and a declining share price.
Hawkins will stay at Minneapolis-based Medtronic, the world’s largest maker of heart devices, until his successor is named. His retirement is planned for the end of this fiscal year in April 2011, according to a company statement. The company said it has begun an external search for his successor.
Medtronic shares have dropped 30 percent since Hawkins was named CEO. He took the post in August 2007 when the company was in the midst of recalls on its heart defibrillators that started in 2005 and reduced sales of the devices at the time. About 62 percent of Medtronic’s sales now are in businesses that are unlikely to grow over the next three to five years, said Michael Weinstein, an analyst for J.P. Morgan, in an investment note.
“Medtronic has struggled to create shareholder value over the last 10 years, and given the challenges facing the company and industry, it’s not getting any easier,” Weinstein wrote. “The good news is that a new CEO can be a catalyst for change, and in the cold winter of the Twin Cities, that starts today.”
Shares rose 22 cents, or less than 1 percent, to $37.62 at 4:01 p.m. in New York Stock Market composite trading. The stock fell 14 percent this year while the Standard & Poor’s 500 rose 12 percent, and the Standard & Poor’s 500 Health Care Index rose 1.3 percent.
The devices industry is changing to a mature business from being a high-growth area, said Derrick Sung, a Sanford Bernstein & Co. analyst, in a note to investors today. Medtronic may benefit from a new perspective on how to navigate that environment, Sung wrote.
In November, Medtronic projected reduced annual earnings of $3.38 a share to $3.44 a share from $3.40 to $3.48. It was the second time the company had cut its earnings forecast for the fiscal year. The revenue growth targets for the company have been lowered from the 15 percent expected in 2005 to the 2 percent to 4 percent expected in fiscal 2011, wrote David Roman, an analyst for Goldman Sachs, in a note today.
A new CEO would be expected to re-evaluate the company’s strategy, making an external candidate more likely, said Aaron Vaughn, an analyst at Edward Jones.
“They’re looking for someone to come in and look at the strategy, so maybe we see some divestitures, maybe they go in a different research and development direction,” Vaughn said today in a telephone interview. “An external candidate can give more of a shakeup and more of a clear view of where the company’s been and where it can go.”
Likely internal candidates include executive vice presidents Christopher O’Connell and Michael Coyle, said Rick Wise, a Leerink Swann analyst, in a note to investors today.
Part of Medtronic’s woes stem from the acquisition of spine-device company Kyphon Inc. for $3.9 billion, announced in July 2007, wrote Weinstein. The market growth for devices to repair spine damage slowed starting in the fourth quarter of 2009, due to high unemployment, the expiration of health-care benefits among the jobless and skepticism about the benefits of spine surgery, Weinstein wrote.
“The structural issues here are going to be difficult for anyone to deal with,” said Raj Denhoy, an analyst for Jeffries & Co. in New York. “The market is slowing, and without innovation they’ve lost share, so they’ve been doubly hit.”
A new CEO may retool the current businesses to cut research and development costs and return more money to shareholders, Denhoy said.
Medtronic has underperformed the market and its industry, said analyst Les Funtleyder, a portfolio manager at Miller Tabak & Co.
“The overall market for devices has pricing pressure and market pressure, but your job as a CEO is to deal with that,” Funtleyder said. “This is what you’ve got and you need to manage around it.”