It took COVID-19 just a couple of months to drag Medline Industries into the global spotlight as a critical source of desperately needed personal protective equipment. But the attention hasn't always been flattering, and surging demand for basics like surgical gloves and face masks hasn't been the windfall it might appear to be.
"If anything, it has slowed down our growth," CEO Charlie Mills says, explaining that the outbreak hurts demand in the $14 billion company's larger product lines while boosting sales in a relatively small corner of its business.
Pressure to ramp up production of low-margin products that account for less than 5% of revenue isn't the only challenge for Northfield, Ill.-based Medline. COVID-19 also has broader implications for the business model that has generated consistent double-digit annual growth rates for the company founded by Mills' great-grandfather 110 years ago.
Medline's growth strategy focuses on sales of highly profitable surgical products, which dropped sharply as hospitals besieged by coronavirus patients canceled elective procedures. Representing about 40% of revenue, surgical product sales "are probably down roughly half," Mills says.
After the pandemic eases, Medline could face calls to reduce its reliance on Chinese producers for personal protective equipment, or PPE, and to keep even larger inventories on hand to ensure hospitals don't run out of essential equipment during the next crisis. Both moves could boost operating costs.
Meanwhile, Medline is under scrutiny from lawmakers for its part in Project Airbridge, in which the federal government aims to expedite the shipment of critical supplies from factories overseas. While the government covers the cost to fly supplies into the U.S., Medline and other players in turn have to sell 50% of PPE to customers in virus hot spots, like Illinois and New York.