Medtronic Revenue Gets Burned by Hurricane and Fire

Medtronic is already bracing for a rough second-quarter earnings report in the aftermath of Hurricane Maria, could California’s wildfires cause further destruction to the company’s bottom line?

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Editor's note: This story has been updated to include a statement from Medtronic.

Medtronic said late last week that Hurricane Maria may have damaged its fiscal 2018 second-quarter revenue and non-GAAP net earnings by up to $250 million. As if that weren’t bad enough, the company now faces potential impact from the deadly wildfires tearing through Northern California.

According to a Star Tribune report, Medtronic evacuated buildings in Santa Rosa, CA on Monday in response to the fires that have ravaged through the area. The company has four facilities in the Santa Rosa and the Sonoma County region that could be affected by the fires, according to the report.

In an email to MDDI Qmed on Wednesday, Medtronic spokesperson Wendy Dougherty said the company's priority right now is the safety of Medtronic employees and their families who live in the area, many of whom are being evacuated.

"On an ongoing basis, we are accounting for and keeping in contact with employees in the area. All facilities in the area are closed until further notice. Our thoughts are with our employees, their families, and the entire Sonoma and Napa communities impacted by the wildfires," Dougherty said.

Monday's evacuation came just three days after Medtronic provided an update on the estimated financial impact from Hurricane Maria in the second quarter. While the company expects some non-recurring expenses directly related to the recovery efforts in Puerto Rico to be excluded from its non-GAAP earnings, expenses related to the impact outside of Puerto Rico will be considered operating expenses. It's too early to determine the ongoing impact, if any, from Hurricane Maria beyond the second quarter, Medtronic said.

Each of Medtronic's four business groups has some level of manufacturing across four major locations in Puerto Rico, and each of those buildings sustained damage to some extent, the company said. Still, considering the severity of Hurricane Maria, Medtronic said its Puerto Rico facilities fared well, and that all of them were able to resume limited production by Oct. 2. Currently, all of the sites are partially operating with the assistance of backup generators, and manufacturing is expected to gradually ramp up over the coming weeks, the company noted.

Medtronic said it is using existing inventory levels and increasing manufacturing in locations outside of Puerto Rico for many of its products. The availability and sales of certain products that are new, or on back order, or had lower inventory levels before the storm are expected to be affected across all four of Medtronic's businesses, particularly in the company's minimally invasive and restorative therapies groups.

The company has more than 5,000 employees and contractors affected by the storm and has verified the well-being of more than 90% of its employee and contractor base. Through the Medtronic Employee Emergency Assistance Fund, the company has provided financial assistance to employees who need it. The company said it also partnered with relief organizations to provide assistance to the people of Puerto Rico.

"The impact to lives and the devastation to property in Puerto Rico is unprecedented and indescribable," said Medtronic CEO Omar Ishrak. "And yet, the resiliency and spirit of our Medtronic colleagues in Puerto Rico remain strong. We are eternally grateful for the commitment of our Puerto Rican colleagues who have returned to work to restore our operations, many of whom have lost everything in this storm."

Excluding the expected impact of the hurricane, Medtronic reaffirmed its fiscal 2018 second quarter and full year guidance, which it provided on Aug. 22.

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