Medtronic, Inc. (MDT), Boston Scientific Corporation (BSX): Here Comes the Medical Device Tax

Page 1 of 2

Ka-ching! That’s the sound of the government’s cash register after the first tax bill from the Affordable Care Act’s medical device tax hit the industry for $97 million this week, according to trade groups.

Medical device companies are grumbling, but investors have yet to feel the hit. It could only be a matter of time, however — and this earnings season has already given us a glimpse of what companies are doing to adapt.

Medtronic, Inc. (NYSE:MDT)Taxes, job cuts, and an industry in transition
Industry groups estimate the tax — put in place in order to help pay for the sweeping reforms of the Affordable Care Act — will drain $194 million per month from the industry en route to coughing up around $29 billion over the next 10 years. That’s chump change for the biggest players in the business, but for the smaller or financially challenged companies in the industry struggling to compete, the 2.3% hit on sales has already forced some changes.

Boston Scientific Corporation (NYSE:BSX) is unloading a new round of layoffs despite recording a better-than-expected fourth quarter. Company CEO Michael Mahoney announced up to 1,000 job cuts after the earnings release, citing the tax’s hit — along with slow growth in some of the company’s units — as a factor in the move.

With Mahoney predicting a tax blow of $75 million to Boston Sci, layoffs are the least he can do to keep the company’s finances afloat, particularly with the cardiac rhythm management and interventional cardiology units — Boston Scientific’s two largest divisions — continuing to see sales fall.

A turn for the worse
Suffice to say, I don’t think the government had these sorts of job cuts in mind when it announced the tax. Zimmer Holdings, Inc. (NYSE:ZMH) already beat Boston Sci to the punch, cutting 450 jobs last year partly because of fear over the tax’s hit. Zimmer’s flat sales and slight drop in profit in its recent quarterly report have pushed the company to announce that it will continue to streamline operations, so more job cuts could be coming.

Medtronic, Inc. (NYSE:MDT)‘s also in the midst of a job-cutting program, with 500 positions slashed and another 500 to come as the company predicts losses of up to $175 million annually.

So, what can you expect going forward? Job cuts and other operational changes should continue to hit smaller or less prominent companies, such as Boston Sci and Zimmer. Even large companies could be forced to change their plans, particularly those with lower growth projections – such as the new Abbott Laboratories (NYSE:ABT), which finds itself much more exposed to the medical device industry after its spinoff. The company’s already promised job cuts due to the tax, and more operational maneuvering wouldn’t be surprising. Abbott’s better positioned than most, with a portfolio that stretches well beyond the United States and into generic drugs and other products, but don’t expect the company to come away without a scratch from the tax.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 9 Most Dangerous Countries for Tourists to Visit

Reign of Terror: The 10 Most Ruthless Politicians in History

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!