Medtronic plc revealed plans to spin off its underperforming diabetes unit as a separate public company during its fourth quarter 2025 earnings call on May 21. The company expects to complete the separation within 18 months.
Analysts and the company project the spin-out to be immediately accretive to gross margins, operating margins and earnings per share, all of which underperformed in the fourth quarter. Earnings per share (EPS), in particular, took a hit from a larger-than-anticipated impact from tariffs.
"This marks a significant milestone in driving both Medtronic and the Diabetes business to achieve lasting value for Medtronic, our shareholders, customers and patients," said Geoff Martha, chairman and CEO of Galway, Ireland-based Medtronic. "Active portfolio management is an important lever to delivering on our ongoing growth and success, and this decision shifts the Medtronic portfolio to have intense focus on our highest margin growth drivers where we have our strongest core competencies.”
Richard Newitter of Truist took a positive view of the separation noting that “a spin of Diabetes has been discussed by investors as a possible portfolio reshape move for some time given the company's prior struggles to sustainably accelerate growth (vs. continuous glucose monitoring and pump peers over the last several years) in the segment and its margin dilutive operating profile. That said, it looked like Medtronic had been turning the business around with double-digit organic growth for six consecutive quarters, so the announcement comes as a bit of a surprise. Or, rather, it is finally ready to be 'stood-up' on its own to create more shareholder value as a stand-alone asset.”
The Diabetes business accounted for 8% of Medtronic revenue and 4% of Medtronic segment operating profit in fiscal year 2025. Management expects the spin to improve Medtronic adjusted gross margin by approximately 50 basis points, adjusted operating margins by approximately 100 basis points, and be immediately accretive to adjusted EPS. In addition, the separation will enable Medtronic to retire Medtronic shares outstanding without reducing cash, resulting in EPS accretion and a reduction in the dividend liability for Medtronic, enabling increased growth-accretive investment. Medtronic expects no changes to its dividend per share without altering its dividend policy.
Current Medtronic executive vice president and president of Medtronic Diabetes, Que Dellara, will become CEO of the new diabetes company (NDC). “Que's impressive track record in driving growth and innovation has set Diabetes on a path to continued success, ensuring the needs of individuals with diabetes are met around the globe," said Martha.
Medtronic pitched NDC as an opportunity to create a leading, scaled direct-to-consumer Diabetes business with the capability to commercialize a complete intensive insulin management ecosystem. This separation is expected to enable more focused investment into NDC’s pipeline and operations with shareholders aligned with the goals and financials of a diabetes-focused enterprise that offers automated insulin delivery and smart multiple dose insulin management.
For Medtronic, the spin-off will enable more intense focus on innovation and category leadership in its core sectors with higher and more profitable growth and focus the company on a streamlined portfolio.