Given that manufacturers across every industry are wrestling with supply chain constraints and related inflation pressure, it's no surprise that investors are tuned in to what management teams are saying about these challenges. What is a bit surprising though, is that commentary about the supply chain and inflation concerns seem to be carrying more weight with investors than other factors.
Take Intuitive Surgical, for example. Last week the surgical robotics pioneer reported 19% procedure growth in the first quarter (well above analyst's expectations). Ordinarily, such positive news would have had a favorable impact on the company's stock price. Instead, investors seemed to be more concerned about the macroeconomic headwinds mentioned during the call, which included the capital spending environment at U.S. hospitals as well as supply chain disruptions.
Some companies, like Masimo, have even called out supply chain impacts in advance of their earnings call.
"In prior quarters, we were able to weather the storm of COVID-related supply chain issues," Masimo CEO Joe Kiani said in a preliminary first-quarter earnings announcement. "However, these issues impacted us in the first quarter. We have strong customer demand, and had we been able to ship what was ordered in the first quarter, our revenues would have exceeded expectations."
Citing shortages of critical components in combination with other supply chain issues, including freight carrier delays, the Irvine, CA-based medtech company said it now expects its product revenue for the first quarter to range from $285 million to $315 million. That is below analysts' consensus forecast of $330.1 million. Masimo plans to announce its complete first quarter financial results May 3.
Larry Culp, CEO of GE, brought up supply chain challenges and other macroeconomic headwinds multiple times throughout the company's first-quarter earnings call Tuesday.
"Collectively, supply chain issues, the Russia-Ukraine war, and China COVID impacts adversely affected revenue in the quarter by about six percentage points," Culp said. "Second, inflationary pressures are impacting GE with higher material and logistics costs."
He noted that the supply chain challenges are having a more significant impact on the company's healthcare and aviation businesses. The company's CFO, Carolina Happ, said the company had expected inventory to grow in the first quarter as inventory was built to support second-half volume, but this was further impacted by material shortages, and delaying shipments of finished goods.
3M executives also addressed the supply chain and inflation issues during the company's first-quarter earnings call Tuesday.
"We continue to navigate global supply chain disruptions, which have been amplified by recent geopolitical unrest. We are doing whatever is necessary to take care of customers, while managing extended lead times and elevated inventory levels," said Mike Roman, CEO and chairman at 3M. "At the same time, we have continued to drive strong pricing to offset inflation."
Edwards Lifesciences, by contrast, appears to be managing its supply chain fairly well, and reports minimal impact from inflation so far.
"While challenges exist, certainly we've been able to manage those through a whole bunch of really concerted activities and efforts from our global supply chain and partners in that supply chain ... And as a result, we've had a minimal impact," CEO Mike Mussallem said during the company's first-quarter earnings call, which was Tuesday after the market closed. "And most importantly, minimal disruption to customer deliveries, which is our real focus."
He did acknowledge that Edwards has seen broad based wage and materials inflation, and inflation in areas like semiconductor chips, resins, and shipping and logistics. The company expects these conditions to continue or maybe even worsen over the course of the year, Mussallem said.
For a broader look at the global supply chain crisis, including strategies that leading manufacturing companies are exploring to mitigate these challenges, check out this recently published special episode of Let's Talk Medtech: