WASHINGTON (AP) — Medtronic, the world’s largest medical device maker, said Tuesday it will lay off up to 2,000 workers as part of a restructuring effort to make up for anemic sales of its implants.
The company said the cuts are aimed at achieving “long-term sustainable growth” and will reduce its 41,000-person work force by 4 to 5 percent. The company did not offer specifics on where the cuts would be made, but said a charge is expected in the fourth quarter.
“We’re looking at the infrastructure across the organization to see where we can be more productive,” said Chief Financial Officer Gary Ellis, in an interview with the Associated Press. Medtronic’s last layoffs were in 2009, when it eliminated more than 1,500 positions.
Medtronic shares fell 95 cents, or 2.3 percent, to $40.32 in morning trading.
Outgoing Chief Executive Bill Hawkins explained that growth in the device sector has fallen from 10-15 percent a decade ago, to low-single digits.
“I strongly believe the demand is there to see this industry reaccelerate, largely driven by the success of innovation coming out of our pipeline and the demand from emerging markets,” said Hawkins.
In late December, Medtronic announced that Hawkins will step down in April after three years leading the company. During his tenure the company has faced weakening sales of its products, due to safety recalls and recession-linked job losses that have reduced the number of insured Americans able to receive its devices.
The Minneapolis-based device maker has scaled back its earnings estimates twice in the past year and forecast an anemic 2 to 3 percent growth in the global market for devices.
The layoffs announcement came as Medtronic reported third-quarter net income rose 11 percent to $924 million, or 86 cents per share. Adjusted earnings totaled $922 million, or 86 cents per share, which was slightly better than Wall Street estimates.
Analysts polled by FactSet expected earnings per share of 84 cents on sales of $3.97 billion.
Wells Fargo analyst Larry Biegelsen attributed the better-than-expected performance to a lower tax rate, which was aided by research and development credits and other one-time benefits.
Sales of defibrillators and pacemakers combined fell 2 to $1.22 billion for the quarter, while sales of stents, heart valves and other heart implants grew 7 percent to $774 million, helped by sales in China, Latin America and other emerging markets. Defibrillators, the company’s best-selling product, use electrical jolts to correct heart attack and other life-threatening heart rhythms. They differ from pacemakers, which use low-voltage currents to keep hearts beating steadily.
Sales of restorative therapies, which include spinal, diabetes and other products, rose 4 percent to $1.86 billion. Within that group, spinal sales increased 2 percent to $861 million, which was ahead of analyst estimates for $850 million. Executives attributed the performance to the launch of its Solera spinal system, a smaller, next-generation device for patients undergoing spinal fusion.
Spinal procedures tend to be expensive and highly invasive and the rate of procedures has not kept pace with company estimates.
Despite improved performance, the company again lowered the range of its full-year fiscal 2011 earnings estimate.
The company expects earnings between $3.38 and $3.40, including the cost of a recent acquisition. That’s down from $3.38 to $3.44 previously. Analysts expect earnings per share of $3.40.
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NewsRadio 830 WCCO’s Steve Murphy Reports