Invacare puts ‘turnaround plan’ in motion

Friday, August 22, 2014

ELYRIA, Ohio – With a consent decree with the U.S. Food and Drug Administration (FDA) taking longer than it expected to resolve, Invacare has accelerated efforts to reduce its cost structure by reducing its workforce by 190 employees.

It’s a move that will save the company $14 million to $15 million annually on a pre-tax basis when fully instituted in 2015.

“We need to find opportunities, as the consent decree continues, to restore profitability,” said Lara Mahoney, director of investor relations and corporate communications. “It was a difficult decision to make, but we need to put ourselves in the right financial position for our remaining associates and for our customers.”

The cuts will affect 150 salaried employees and 40 temporary employees across three divisions: North America/Home Medical Equipment, Institutional Products Group and Asia/Pacific. About 60 of the salaried employees work at the company’s Elyria North Ridgeville campus.

Mahoney characterized the restructuring as “one piece of our turnaround plan.”

“We will have to look at other initiatives to drive costs out of our complex business model and improve sales,” she said.

During a July 24 conference call to discuss Invacare’s financial results for the second quarter and first half of the year, interim President and CEO Rob Gudbranson hinted that the company had “tough decisions” to make, but that it was “committed to turning around the business in this challenging time.”

To lift the decree, Invacare must pass a third and final audit by a third-party auditor and, after that, a re-inspection by the FDA. During the call, Gudbranson said Invacare still needed to better demonstrate that its quality system is sustainably compliant and that each subsystem is properly integrated.

“(Lifting the consent decree) is taking longer than we thought,” Mahoney said. “It’s a very complex and fully integrated process.”

Invacare has struggled under the weight of the consent decree, which has limited manufacturing at its Taylor Street facility. For example, the number of domestic power wheelchairs that it has shipped from the facility in the second quarters of 2014 and 2013 represented only 8.8% and 14.5%, respectively, of the pre-consent decree units shipped during the same period in 2012.

Invacare has already reduced its workforce at the Taylor Street facility. There have been three layoffs there since the decree went into effect in late 2012: 25 workers in July 2013, 68 workers in April 2013 and 143 workers in late 2012. A “small number” of workers have since returned to the plant.

Invacare isn’t the only manufacturer in the industry reducing its workforce: ResMed announced in July that it had reorganized its commercial and research and development teams in the Americas. The move affected 1% to 2% of its global workforce of about 4,000 and resulted in a $6.3 million expense related to employee termination benefits in the fourth quarter.