Updated: 2:01 EST
In his final earnings call with analysts, soon-to-be-retiring Medtronic (NYSE:MDT) Chairman and CEO Bill Hawkins may have wished to deliver better news.
Instead, he announced that between 1,500 and 2,000 Medtronic layoffs would occur at the Fridley, Minnesota-based company.
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The announcement was part of the company’s third fiscal quarter earnings which saw revenue at the company’s main Cardiac Rhythm Disease Management division decline 2 percent to $1.22 billion as it lost market share in key markets.
Overall, in the quarter ended Jan. 28, revenue increased 3 percent to $3.96 billion, up from $3.85 billion in the same period a year ago. Net income was $924 million, or 86 cents per diluted share in the fiscal third quarter, up from $831 million, or 75 cents per diluted share a year ago.
The layoffs, scheduled sometime in the next three months, would affect between 4 percent to 5 percent of the company’s workforce, but it’s not clear where the cuts will be made – either geographically or in which specific business segment.
In the U.S., Medtronic employs 24,200, including 8,000 in Minnesota. Globally, the medical device company has 41,000 workers.
Despite multiple questions from analysts about the restructuring, neither Hawkins nor Medtronic CFO Gary Ellis would offer more details. However, Ellis did say that it would affect markets that have slowed down. In the company’s CRDM division, for instance, the recall of the defective Sprint Fidelis implanted cardioverter defibrillator leads has negatively affected the Japanese market and the company has lost market share there over the past couple of years, Ellis said.
In the U.S., the ICD market was down slightly, partly affected by what executives described as a short term impact of an article from the Journal of American Medical Association and the activities of the Department of Justice.
A JAMA article released in January said that between 2006 and 2009, 22.5 percent of patients that were implanted with an ICD did not need it. The activities of the DOJ was likely a reference to a new civil lawsuit that the government filed in late January against Boston Scientific related to its Guidant division. In April 2010, Boston Scientific pleaded guilty to criminal charges and forked over a $296 million penalty for the concealment of design flaws in Guidant’s implantable cardiac defibrillators and pacemakers, even though they occurred before the company acquired Guidant in 2006.
Meanwhile, for Medtronic, as U.S. markets for cardiac rhythm and pacing products appear to be slowing down, the opposite is true of emerging markets. Those will most likely not see the layoffs the company announced Tuesday.
Emerging market revenue was $350 million – a 26 percent jump from the same period a year ago. Executives specifically talked about China, which they expect will continue to be a strong market for Medtronic in the future.
The company also reiterated a plan to divest Physio-Control, a wholly-owned subsidiary of the company.
