In a pandemic world, all businesses are heavily impacted. The degree to which the sustainability and long term health of an organization is impacted, however, can vary greatly. Fortunately, for Medtronic, through skillful planning and financial management, the organization is holding resilient in the face of Covid-19 and is positioning itself to be even strong as the world begins to recover.
This is not to say that Medtronic is without its own set of challenges. Elective procedures have been delayed or canceled around the world, and all medical device makers are struggling with this change in circumstances. The company has also seen a drop in capital equipment purchases – except for ventilators and patient monitoring devices.
Moreover, there are headwinds due to a drop-off in large customer orders usually received at the end of the fiscal year. Healthcare clients are prioritizing spending differently during the pandemic and are deferring expenses, especially for those products used in elective procedures.
Meanwhile, some of the company’s products are in high demand. In response to the effects of Covid-19, Medtronic’s cardiovascular and vascular group, minimally invasive therapies group, and its diabetes sales have soared. More specifically, the firm’s extracorporeal membrane oxygenation machines, ventilators, pulse oximetry equipment, capnography offerings, advanced parameter monitoring products, and diabetes supplies have all been top sellers. The company reported that all combined, these sales represent about 10 percent of its pre-coronavirus global revenue.
The firm shared how Covid-19 has affected its operations around the globe. China represents 7 percent of Medtronic's total revenue; the pandemic is likely to impact revenues throughout all of the fiscal fourth quarter. During the week of March 9, the company's weekly revenue dropped 50 percent year-over-year in the country. In the days following, the medical device maker experienced weekly revenue decline, on average, between 20 to 40 percent year-over-year, slowly shifting direction as the market began to recover.
Medtronic brings in 20 percent of its total company revenue from Western Europe; the region started feeling the effects of Covid-19 in the third week of March. Since then, the firm's weekly revenue dipped an estimated 20 to 30 percent year-over-year on average. These totals exclude any impact from bulk purchases made by customers.
The United States represents over half of Medtronic’s total revenues. The company began to feel the pinch of the coronavirus impact in the states during the week of March 16. U.S. weekly revenue declined approximately 60 percent year-over-year on average in the weeks following. Similarly, these figures exclude any effect from customer bulk purchases.
On the expenses side of the equation, Medtronic has chosen to continue with business as usual. The firm is spending on research and development and its employees, including its salesforce. It is also running its factories at near or full capacity to ensure inventory is available when the world has suitably recovered and customers need to order products beyond ventilators.
Fortunately, Medtronic enjoys a strong financial position with enough liquidity at $11 billion in cash and investments and $3.5 billion in undrawn credit. Additionally, the company does not have any public debt that will come to term until March 2021. Leadership will be continuing to invest in projects and initiatives that support long-term strategies.
“While the expected short-term impact to our financial results is significant, it is consistent with the impact discussion broadly across the medical device industry,” said Geoff Martha, Medtronic president. “Importantly, we are starting to enter the early stages of a global recovery. As hospitals begin to resume broader treatment …. of patients around the world, we expect our business to begin to recover as well. In addition, given the financial strength of the company, we are executing strategies to come out of this pandemic even stronger.”
