USA – Medtronic CEO Geoff Martha has stated that the company’s fourth-quarter performance was hampered by a “catastrophic explosion” in its packaging supply chain and a resin shortage.

Medtronic based in Fridley, Minnesota, reported US$350 million fewer sales than analysts expected for the first quarter ended April 29.

Martha stated that supply chain issues were responsible for approximately 75% of the miss, the COVID-19 lockdown in China was responsible for 15%, and foreign exchange rates were responsible for the remaining 10%.

Supply chain issues “came out fast and hard” across the company’s businesses in the fourth quarter, but were most pronounced in Surgical Innovations (SI), according to Martha.

“It was three things,” Martha said. “It was semiconductors, which is affecting everybody. That affected a number of businesses, but particularly in our SI business.

It also was resins. A particular resin that we use in our energy business and SI has been a major source of problems for us.

And then packaging, our trade packaging, there was a catastrophic explosion in our supply chain. And so those last two ones — the packaging and the resins — were the biggest issues, the biggest supplier de-commits, and I’d say the biggest surprise. And most of that was in SI.

Martha didn’t elaborate on the explosion, so it’s unclear whether he was referring to a metaphor or a literal explosion. Medtronic did not immediately provide additional information.

In the second half of the quarter, Martha said, suppliers missed more deadlines “than we’ve ever seen.” He expects the supply chain situation to improve in the next quarter or two, with the SI issues likely to be resolved in the first half of Medtronic’s fiscal year.

Analysts pressed Martha on supply chain improvements for more consistent performance, with Bank of America’s Travis Steed noting that Medtronic’s supply chain issues were worse than its peers.

“We’re well down the path of remaking our global ops and supply chain to provide that resiliency that we just haven’t had,” Martha said.

And we started that over a year ago, centralizing the function and building a very strong leadership team under [former Walmart executive] Greg [Smith], bringing in new people from different industries, investing in all kinds of tools and technology and operating mechanisms for this.

I’m confident we’re going down the right path there. I’m glad that we started when we did. I wish we would have started even earlier.”

Medtronic’s revenue increased by 5% to US$31.7 billion for the full fiscal year. Organic sales increased by 5%, falling short of the company’s forecasted 7% to 8% organic growth in fiscal 2022.

The earlier, the better

Starting earlier would have helped with the fourth quarter surprises, Martha said.

The CEO informed investors about supply chain changes the company is making to its global supply chain, including the hiring of a former Walmart executive to lead those efforts in March.

Martha added that Medtronic’s global supply chain was “set up for a different era, and we had to make those changes. Unfortunately, they have not yet fully taken hold; they require more time to mature.”

EVP and Medical Surgical Portfolio President Bob White reported ‘good progress on the supply chain issues” that slowed Medtronic’s launch of its Hugo surgical robot platform.

Medical device makers are becoming increasingly vocal about material and component shortages, particularly semiconductors.

When supplies are scarce, the industry association AdvaMed continues to press the Biden administration to prioritize medical devices.

On Thursday, the company announced an 8% dividend increase to US$2.72 per share.

In the most recent developments, Medtronic is set to spin off its renal business into new company, merging with Denver-based DaVita.

The new company will develop kidney care products and solutions, including future home-based products, to make different dialysis treatments more accessible to patients.

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