When Bishop & Associates asked medical OEMs “How’s business?,” the response showed a 15.6% sales increase and a 37% drop in profits.
Bishop tracks eight companies in the medical market sector. These companies’ combined sales have grown year over year for the past 14 consecutive quarters ending with 3Q15. In 2013, these companies grew 3.0% year over year and 5.5% in 2014. In the first quarter of 2015, the companies expanded 15.3% over the prior year’s results. In comparison with these companies, the cable assembly market for the worldwide medical market sector grew 0.3% in 2013 and 5.8% in 2014. The cable assembly market for medical is projected to contract 9% in 2015.
Bishop follows electronic interconnects sales trends in 13 markets. The combined annual revenue of all the market sectors was $4.35 trillion in 2014 and grew 1.9% over 2013. Of the 13 market sectors, medical was the fifth-fastest growing market sector in 2014 at 5.5%, with combined revenues of $79.9 billion. Profitability was $8.9 billion at 11.2% of sales.
Of the companies followed for medical, Medtronic had the largest year-to-date growth through 3Q15 at 63.8%. Two companies had double-digit growth in sales, and Baxter contracted 18.3% year to date. Three of these companies’ growth or contraction was effected by acquisitions or divestitures.
Medtronic grew sales to $21,636 million in the first three calendar quarters of 2015, which is 63.8% over calendar year 2014. The large increase in sales was due to the acquisition of Covidien. On a pro forma basis in the quarter, the combined companies’ sales were up 6%, but their net income was down 37% due to a non-recurring tax adjustment.
“Q2 was another strong quarter,” said Omar Ishrak, Medtronic chairman and chief executive officer. “Our above-market revenue growth remains robust and consistent, and, we believe, sustainable across our groups and regions. We are steadily executing our plan and meeting our expectations, while at the same time building a foundation for long-term dependable revenue growth and EPS leverage.”
Becton Dickinson sales increased 28.0% year to date to $8,230 million. Part of the growth was due to the acquisition of CareFusion. For the full fiscal year ending September 30, 2015, BD reported adjusted revenues of $10,302 million, an increase of 22.0% over the prior-year period as reported, or 29.5% on a currency-neutral basis. On a comparable, currency-neutral basis, full fiscal-year adjusted revenues grew 5.3%. As reported, full fiscal-year revenues were $10,282 million.
Danaher grew its medical sales 11.5% in the first three quarters of 2015 to $7,536 million. Revenues for the third quarter were up 16.8% from the prior year. Danaher’s net income for the three quarters of 2015 was down 4.8% from 2014.
Baxter contracted 18.3% for the first nine months of 2015 over the prior year. Sales for 3Q15 were down 40.7% from 3Q14. This is primarily the result of spinning off its bioscience business unit, Baxalta, in July of 2015.
The following table shows the results for the eight companies Bishop tracks in the medical market sector.
Medical Market Sector – Sales and Net Income
As shown in the following chart, year-over-year sales results have been growing since 2Q12; they grew 11.8% in 3Q15 over the prior year. Sequentially, 3Q15 sales were down 6.3% from the second quarter of 2015.
Trends in the Medical Market
The medical market is still being impacted by the same trends it encountered in 2014.
Reduced spending for medical equipment in North America and Europe is still an issue. Changing regulations and budgetary constraints (due to slow economic growth) are the main culprits.
On the positive side (for the industry), the aging of the world’s population creates increasing demand for healthcare products and services. The size of the populations of China and India also drives demand as more people are brought into their healthcare systems.
The demand for self-monitoring one’s health is also growing quickly. Medical devices bought by the consumer to self-monitor will result in more medical equipment sales.
Although sales are growing, for the companies covered in this article, profitability is most decidedly trending down as the above factors impact the industry.
Bishop & Associates estimates the worldwide market for medical cable assemblies will contract 8.9% in 2015. At 9.9% year-over-year growth, China will be the fastest-growing region in 2015 for this cable assembly type. The overall cable assembly market is projected to contract 6% in 2015.
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