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Why Medtronic's CEO hasn’t raised prices amid inflation

·3 min read
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Persistent sky-high inflation has triggered a slew of price hikes from major companies that serve millions of consumers. The latest announcements have come from the likes of furniture giant Ikea, food staple Kraft Heinz (KHC), and Mondelez (MDLZ), the maker of Oreos and Chips Ahoy. 

But Medtronic (MDT) CEO Geoff Martha, whose company produces high tech medical devices, told Yahoo Finance why he hasn't joined other companies in raising prices.

In a recent interview, Martha acknowledged the likelihood of ongoing inflation but said the company has avoided price increases due to relatively wide product margins and cost savings from reorienting its supply chain. 

"The inflationary costs are real," Martha says. "I'm not an economist — I don't know when that's going out, what the future holds here — but we're definitely planning for higher inflation."

"Right now we have not passed along price increases," he adds. "We have pretty good margins, and we've got some cost-down programs that we were hoping to actually improve margins — now they're kind of offsetting some of the inflationary pressures."

Fed Chair Jerome Powell on Tuesday told Congress the central bank will retire its use of the word "transitory" to describe inflation, acknowledging that the "risk of higher inflation has increased."

The remarks come just weeks after new data showed prices in October jumped 6.2% year-over-year, the fastest annual rise since 1990.

Medtronic, whose primary customers are specialist physicians and hospital administrators, has faced a challenging market amid COVID-19 as coronavirus patients overrun hospitals and many Americans forego major medical procedures, company executives said on an earnings call last month.

But in contrast with companies in other sectors, Medtronic enjoys wide enough margins on its products to avoid price increases, Martha said.

"I've talked to a lot of CEOs on this one and you've got some industries where there's razor thin margins and they pass along the inflationary cost," he says. "I've talked to others that are more in the moderate and your medium margins and they pass along some of the costs." 

Martha, who became Medtronic CEO last April, joined the company in 2011 after two decades at General Electric (GE). 

CORRECTS DATE - Chevron Gas prices over the $5 mark are displayed in Visalia, Calif., Tuesday, Nov. 16, 2021. (AP Photo/Rich Pedroncelli)
Chevron Gas prices over the $5 mark are displayed in Visalia, Calif., Tuesday, Nov. 16, 2021. (AP Photo/Rich Pedroncelli)

Speaking to Yahoo Finance, Martha noted that persistent inflation has contributed to the company's recent focus on improving its supply chain efficiency, in the hope that savings will offset the heightened costs from inflation.

"We're not necessarily known for supply chain excellence or manufacturing, so we're bringing that into our company," he says. "One of the incentives to do that is the inflationary pressures and not wanting to pass that along to healthcare systems." 

"Healthcare is already a pretty high percentage of what many governments spend and I don't see them wanting it to go any higher," he adds.

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