May 21 (Reuters) - Medical device maker Medtronic said on Wednesday it plans to separate its diabetes business, which houses its insulin pumps and other wearable devices, into a stand-alone company and forecast 2026 adjusted profit below estimates.
The unit has been struggling over the last few years following regulatory concerns over quality management and cybersecurity issues related to its certain devices. The spin-off would allow Medtronic to focus on its more profitable businesses such as heart devices, its biggest revenue driver.
The new company will be headed by Que Dallara, the current chief of Medtronic's diabetes division, and will house about 8,000 employees and be headquartered in Northridge, California.
Medtronic expects the separation to be immediately accretive to profit, along with improved margins. The company said that diabetes devices are predominantly sold directly to consumers, rather than businesses like other devices, requiring different commercial and manufacturing strategies.
The spin off is expected to be complete within the next 18 months through a series of capital markets deals, with a preferred path of an initial public offering and subsequent split-off.
"Either Medtronic's diabetes business won't sustain the current high-single-digit organic growth... or the fact that this is not a value-creating tactical option for the company... we don't view this news favorably," said J.P. Morgan analyst Robbie Marcus.
Separately, Medtronic forecast its fiscal 2026 adjusted earnings per share in the range of $5.50 to $5.60, below Wall Street estimates of $5.83, according to data compiled by LSEG.
The company said that the lower end of the outlook assumes that the bilateral U.S.-China tariffs resume at the higher rates following the 90-day pause after the countries agreed to slash them last week, while the higher end of the EPS range assumes tariffs currently in effect during the pause remain in place through fiscal year 2026.
Medtronic expects a tariff hit of about $200 to $350 million in 2026 on its cost of goods sold, after mitigation efforts.
It also posted an adjusted profit of $1.62 per share for the fourth quarter ended April 25, ahead of the estimate of $1.58, driven by sales of both heart devices and diabetes devices.
Medtronic shares were down 1.3% in pre-market trading.
Reporting by Sriparna Roy, Kamal Choudhury and Puyaan Singh in Bengaluru; Editing by Nivedita Bhattacharjee and Shailesh Kuber
Source: Reuters