Late this summer, when the medical-device giant
last reported earnings, the company’s top executive said that the impact of the Covid-19 pandemic was fading in the rearview mirror.
“The Delta variant seems manageable,” Chairman and CEO Geoff Martha told Barron’s at the time. “We’re moving ahead.”
That’s not how things turned out. On Tuesday, Medtronic (ticker: MDT) reported sales for the three months ending in October, the second quarter of its fiscal year, that slightly missed Wall Street analyst expectations, and cut its sales guidance for its full 2022 fiscal year.
Medtronic now expects fiscal year 2022 revenue to grow 7% to 8% from the previous fiscal year, down from its previous guidance of 9% growth. It maintained its previous non-GAAP earnings-per-share guidance range from $5.65 to $5.75.
“The thing that’s changed, that we didn’t fully appreciate, was the nursing shortage in the U.S.,” Martha told Barron’s on Tuesday.
Medtronic’s medical devices are often used in procedures that require the involvement of nurses, either during the procedure itself or to care for the patient afterward. Martha cited one line of products used in transcatheter aortic heart-valve replacements that require an intensive-care-unit bed to be available to be performed.
“During the height of Covid, the ICU beds were full with Covid cases,” Martha said. “That’s not the case now, but they don’t have enough ICU nurses”
Reports of nursing shortages have cropped up around the country in recent months. Martha said that the hospitals he speaks with attribute the shortage to burnout and early retirements.
The nursing shortages had an impact on Medtronic’s sales.“We were expecting the bounceback to be a little faster” after the Delta wave, Medtronic Chief Financial Officer Karen Parkhill told Barron’s. “What happened was it was a little slower because of the nursing shortage.”
Martha said that he expects the missed procedures to be deferred, rather than canceled. “This will pass,” Martha said. “These are deferrable, not elective cases. This will get solved and meanwhile we’re continuing to double down on our investments.”
Medtronic reported revenue of $7.8 billion for the quarter, up 3% from the same quarter last year on a reported basis.
The impact of the nursing shortages, and the generally slower-than-expected nature of the recovery for Medtronic, could have implications across the sector. The company’s quarters are a month off the rest of the industry’s, offering a bit of a preview for the rest of the sector’s fourth-quarter results early next year.
“Medtronic remains a Medical Device barometer of sorts,” Oppenheimer health-care equity strategist Jared Holz wrote in an email to investors early Tuesday. “In terms of Medtech as a larger complex, we remain near-term cautious given the moving parts that still appear to be pervasive within the space and this MDT print confirms some of these issues in more tangible terms.”
Martha notes that, while the company has cut its revenue expectations, it has maintained its earnings guidance. “It’s going to impact, but not to the extent that it’s going to hurt our profitability,” he said.
What that means for the broader economy’s long march back to normal is difficult to assess. Covid-19 cases are climbing again across the U.S., though higher vaccination rates could blunt the impact of the virus.
As for Medtronic, Martha says that the company will be in good shape as the virus recedes: “We’re well-positioned when we get out of the market dynamics.”
Medtronic stock is down 3.1% as of midday on Tuesday, and the year-to-date loss stands at 3.3%.
Write to Josh Nathan-Kazis at [email protected]