By Josh Nathan-Kazis

The U.S. medical device maker Medtronic said it expects President Donald Trump's new tariffs to add up to $950 million to its gross cost of goods in its new fiscal year, and could keep earnings roughly flat.

Medtronic says it can mitigate much of the damage tweaks to its supply chain and other maneuvers. But though Trump imposed the tariffs at least in part to force companies to move more manufacturing into the U.S., Medtronic says that it can't do that quickly enough.

"We can't really change manufacturing locations in the short term, because that takes time, sometimes it requires [Food and Drug Administration] approval" from the Food and Drug Administration, CFO Thierry Piéton told Barron's in a Wednesday interview.

Instead, the company is changing how it moves its goods, not where it makes them. "If you have a product manufactured in Mexico that is destined for Europe, sometimes we would send that product to the U.S. distribution center and then to Europe," said CEO Geoff Martha. "Now, just send it right to Europe."

Medtronic sells implants and devices used in heart surgeries, spine surgeries, and a long list of other procedures. Based in Minneapolis and legally headquartered in Galway, Ireland, it says that more than half of its manufacturing sites are in the U.S.

"Sixty percent of our revenue globally is tied to manufacturing in the U.S.," Martha said. "We have 35 manufacturing and distribution centers in the U.S., right? We invest $5 billion a year in these factories."

Despite that, the tariffs could still weigh heavily on Medtronic's earnings in its new fiscal year, which started in late April. While the company disclosed better financial results for the fourth quarter of its 2025 fiscal year than Wall Street expected on Wednesday morning, its guidance for its 2026 fiscal year was a disappointment. The tariffs were to blame.

Investors have been worried about how the tariffs would affect medical- device companies like Medtronic. The stock had fallen 2.4% between when Trump detailed his tariff plan in early April, and the close of trading on Tuesday. Shares were down another 1.2% on Wednesday.

If the Trump administration reinstates the 145% tariff on China in August, as the president has said he might, Medtronic expects its gross cost of goods sold to increase by $950 million. If the China tariffs stay around their current level of 30%, the company expects a $700 million increase.

Medtronic says that it can save between $500 million and $600 million through "mitigation actions," so it only expects a net increase in its cost of goods of between $200 million and $350 million.

"In a matter of a few weeks, the team has done, I think, a really good job of offsetting a large portion of the tariff exposure," Piéton says. "But it remains, as you saw in the guidance, a significant headwind for us."

The tariffs appear to weigh heavily on Medtronic's outlook. The company says it expects "underlying" earnings per share growth, excluding tariffs, of around 4%. But its earnings guidance for 2026, which incorporates the tariff impact, is between $5.50 and $5.60 per share, only 0.2% to 2% more than its 2025 non-GAAP profit of $5.49 a share.

Analysts had expected an earnings forecast of $5.82 per share for 2026.

Also on Wednesday, Medtronic says it plans to split off its diabetes business into a stand-alone public company sometime over the next 18 months. The diabetes business, which sells a device called a MiniMed that combines an insulin pump with a continuous glucose monitor, had revenues of $2.8 billion in the company's 2025 fiscal year. That was 8.1% of the total company revenues.

Martha said that the diabetes business was growing quickly, but that it is different from the rest of the Medtronic portfolio. It markets its products directly to consumers, unlike the rest of the business, and has narrower profit margins

"We're confident it's going to be valued higher outside the company," Martha said.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 21, 2025 12:46 ET (16:46 GMT)

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