Medtronic is trimming back its financial forecasts for the latter half of its remaining fiscal year, in the face of headwinds from foreign exchange rates and after seeing a slower-than-expected return of medical procedure volumes.
The second quarter of the medtech giant’s 2023 fiscal calendar, which wrapped up Oct. 28, brought in a total of $7.6 billion in revenue. That equals a 3% decrease compared to the same period the year before when including a $457 million hit from foreign currency changes.
But even without that weight—and excluding what was dubbed an inorganic $25 million gain from its earlier acquisition of Intersect ENT—those three months would only amount to a 2.2% increase, the company said in its earnings release. That’s still below Medtronic’s previous projections, which had been set at 4% to 5% organic growth for the full year.
“Slower than predicted procedure and supply recovery drove revenue below our expectations this quarter,” CEO Geoff Martha said in the release. “We continue to take decisive actions to improve the overall performance of the company, including streamlining our organizational structure, strengthening our supply chain, driving a performance culture, and strategically allocating capital to support our best growth opportunities with the investments they deserve.”
The company went on to say that—if foreign exchange rates continue as they have since the start of this month—the impact to revenue this fiscal year could total about $1.74 billion to $1.84 billion, compared to past estimates of $1.4 billion to $1.5 billion. Medtronic’s stock was down by more than 6% following the news, to about $76.70 per share.
Still, Medtronic said it expects to see accelerated organic sales growth in the second half of its fiscal calendar, resulting in gains of 3.5% to 4.0% through the end of April 2023.
This quarter, the company reported worldwide declines within its cardiovascular and diabetes businesses, of 1.9% and 5.0%, respectively, to totals of $2.7 billion and $556 million—though excluding currency impacts would bring comparative increases of 4.4% and 3.1% versus the prior year.
Neuroscience sales posted reported and organic gains of 2.3% and 5.1%, amounting to about $2.2 billion, led by growth in specialty therapies such as neurostimulation implants for incontinence.
Medtronic’s medical surgical division, however, was down in both categories: a 10% decline as reported and a 3.5% reduction in organic revenue. That encompassed a 6.6% reported drop in worldwide surgical tool revenue and a 16.3% tumble in respiratory, gastrointestinal and renal sales.
The latter group has been the focus of Medtronic’s plans to offload those businesses into independent companies. As outlined earlier this year, Medtronic plans to transform its renal care business into a new kidney care-focused medical device company through a joint venture with the dialysis giant DaVita.
Meanwhile, the company announced in October that it aims to spin out its respiratory and patient monitoring operations, which would create a new home for its lines of ventilator systems. Sales of that durable medical hardware have dramatically declined since the early stages of the COVID-19 pandemic when ICU ventilators were in high demand and short supply.
For the second quarter, ventilator sales continued to be down more than 50% compared to the same period in 2021, and “well below pre-pandemic levels as expected,” the company said. Patient monitoring products such as pulse oximetry sensors have also seen COVID-related declines.
“On the bottom line, we are driving expense reductions throughout the company to help offset the lower revenue and the effects of cost inflation,” Chief Financial Officer Karen Parkhill said in the company’s release. Parkhill added that Medtronic plans to invest in tuck-in deals to continue expanding its portfolio, as well as make minority investments in companies to help set up potential future acquisitions.