Financial Performance

Medtronic Sales Show Impact of Supply Glitch

Sales of the company's diabetes division fell 1% in the first quarter amid a supply shortfall for its glucose monitor sensors.
Matthew HellerAugust 22, 2017

Medical device maker Medtronic overcame lagging sales of diabetes products to post better-than-expected earnings, though revenue missed estimates.

Sales in Medtronic’s cardiac and vascular business, which sells defibrillators, pace-makers, heart valves and stents, rose 5.1% to $2.65 billion in the first quarter, fueling a 3.1% increase in overall revenue to $7.39 billion.

Excluding one-time items, the company earned $1.12 per share, beating analysts’ average estimate of $1.08, according to Thomson Reuters I/B/E/S. But analysts had predicted revenue of $7.45 billion.

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The diabetes business, which includes artificial pancreases, glucose sensors and insulin pumps, saw a 1% drop in sales to $449 million, reflecting a supply shortfall for the company’s glucose monitor sensors and missing Wall Street estimates of $471.3 million.

“Growth in the diabetes division was slower than expected in the quarter,” noted Edward Jones research analyst John Boylan. “But once they can match supply with demand, which we think they will do over time, this will be long-forgotten,” he said.

The division had been expected to increase sales by as much as 12% this year but in announcing the quarterly earnings on Tuesday, Medtronic pared its diabetes guidance to growth of 1% to 4%.

Demand for the sensors has more than doubled in two years, which has “temporarily outstripped our production capacity,” chief executive Omar Ishrak said during an earnings call. “We accelerated plans to increase sensor production capacity last year, but these lines are not expected to be ready for commercial production until our fourth quarter.”

He also said that the “strength of our diversification and solid underlying performance of our businesses, combined with the stable growth of our end markets, enabled us to manage the impact” of the sensor supply constraint.

According to the Minneapolis Star-Tribune, analysts have estimated that the recent week-long outage of a critical computer system, along with the diabetes sensor supply problems, knocked about $70 million off Medtronic’s sales for the quarter.

In trading Tuesday, Medtronic shares fell more than 2% to $81.76.