Medical devices major,
St. Jude Medical, Inc.
) recently announced that it will consolidate its four operating
segments into two units as a part of its cost-cutting measure to
leverage future growth. The company also changed the executive
heads leading the business segments and eliminated roughly 300
employees in the process.
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In addition, St. Jude will centralize various support functions
like human resources (HR), business development, information
technology (IT), legal and many marketing functions. However, the
company's United States and International Divisions will continue
to focus on product commercialization. The company also plans to
provide necessary support to the employees who were laid-off.
The company is currently facing pricing pressure for its products
due to the increasing cost curtailment pressure on healthcare
systems, led by the U.S. healthcare reform legislation. Global
economic downturn and competitive pressures continue to generate
reimbursement risks and potential reduction in procedural volumes.
To counteract the above difficulties, St. Jude is focusing on
improving its operating margin to enhance its economies of scale.
The company anticipates that the reorganization endeavors will
diminish pre-tax operating expenses by roughly $50 to $60 million
annually, starting from 2013. The company plans to utilize this
savings to fund its portfolio of new growth drivers and maintain
its industry leading position.
Per the realignment plan, the Cardiac Rhythm Management ("CRM")
Division and the Neuromodulation ("NMD") Division have been
combined to form the Implantable Electronic Systems Division
("IESD") whereas the Atrial Fibrillation ("AF") Division and the
Cardiovascular ("CV") Division have been clubbed to form the
Cardiovascular and Ablation Technologies Division ("CATD"). IESD
and CATD will be headed by Eric Fain and Frank Callaghan,
respectively, who will report to Group President Michael Rousseau.
Further, Donald Zurbay has been appointed the vice president of
finance and chief financial officer and will report to John
Heinmiller, who has taken on the larger role of the executive vice
president, in charge of the centralization of the IT, HR, legal and
business development functions.
Rachel Ellingson has been appointed as the Vice President of
corporate relations, replacing Angela Craig. Angela Craig has been
named the Vice President of global human resources. An additional
vice presidential post has been created under global regulatory,
with Kathleen Chester being appointed to the position.
Earlier, in 2011, St. Jude had undertaken a restructuring
initiative to realign certain activities in the CRM division as
well as sales and selling support organizations. The plan included
shutting down the CRM manufacturing and research and development
(R&D) operations in Sweden in an effort to reduce the company's
workforce and rationalize product lines.
Neutral on St. Jude
St. Jude is a leading medical device manufacturer with a solid rate
of growth over the past decade. We are impressed by its solid
fundamentals, healthy growth trajectory, strong product mix, robust
pipeline and cost management initiatives.
While a host of new growth drivers, including new products and cost
saving measures, are expected to boost results in 2013 and beyond,
we remain cautious about the increased competition, weakening Euro,
the soft CRM business and the overall tough macroeconomic
A still choppy CRM space overhangs on St. Jude and its peers
). We currently have a Neutral recommendation on St. Jude, which
carries a short-term Zacks #3 Rank (Hold rating).