Growth Is the Deity Medtronic CEO Omar Ishrak Will Worship

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In his debut earnings call with analysts Tuesday, Medtronic (NYSE: MDT  ) CEO Omar Ishrak repeatedly said that a singular focus on growth would be his top priority to transform the company, whose operating results for the first fiscal quarter he described as "unsatisfactory."

Profits in the first fiscal quarter ended July 29 fell to $821 million from $830 million in the same quarter a year ago. Revenue climbed 7 percent to $4.05 billion. Diluted earnings per share increased by a penny to $0.77. The company's largest division -- Cardiac Rhythm Disease Management -- declined 3 percent to $1.25 billion.

If analysts and investors were hoping for job cuts or sale of business units or any kind of major shake-up to try and revive Medtronic's moribund stock price and turn around a company facing a number of headwinds, they were disappointed. (One analyst had speculated that hurt by the controversy surrounding its Infuse bone growth product, Medtronic might put up the spine business for sale.)

 "I like what we have. I think we have good diversification, a good mix of businesses at different stages of evolution," Ishrak said to analysts. "If this company was growing even in the mid single digits, it would be a totally different equation. We think that there is an opportunity for growth and we are going to hit that, and if we hit that, that transforms the company. So that is my single business priority."

If growth is the deity at whose altar Ishrak will worship, he believes that getting that deity to smile on Medtronic will mean offering three types of tribute: improving execution, optimizing innovation and accelerating globalization.

On the subject of innovation, Ishrak signaled an important change in philosophy that Medtronic, and indeed the rest of the industry, seems to have followed in the past.

"Historically, Medtronic has focused on developing new, high-end therapies and incremental innovation to drive growth," he said. "While this has often worked in the past, in today's environment with longer regulatory cycles and more cost-sensitive buyers, we must look for new and creative ways to generate growth."

Instead, Ishrak wants to look at how the penetration of existing therapies can be improved. The comment also harkens back to Ishrak's aim of making sure that Medtronic can explain how customers can wring economic value from its products, another aspect in which Medtronic's performance has been subpar.

"While Medtronic has world-class capabilities in clinical research and health care economics, we have not consistently translated them into meaningful and succinct economic value to our customers," he noted.

That value proposition needs to extend globally as well. Ishrak indicated that his goal will be to get Medtronic to develop "potentially disruptive business models" for each of the company's major emerging markets.

"The biggest long-term opportunity will be our ability to meet the needs of the billions of people that have no access to health care at all," Ishrak said, echoing a philosophy that he appears to be carrying over from GE Healthcare Systems, where he was president and CEO.

Other things to expect under Ishrak's reign:

  • more investment in R&D in local markets
  • an increase in manufacturing and strategic partnerships in local markets
  • more acquisitions internationally
  • tuck-in acquisitions will mainly involve companies with shorter product cycles unlike in the past
  • no change to dividend strategy
  • no other business unit divestment other than Physio-Control

The Motley Fool owns shares of Medtronic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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10/21/2016 4:00 PM
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Medtronic CAPS Rating: *****