Medtronic 2Q profit rises 59 percent on sales

AP News
|
Posted: Nov 24, 2009 5:00 PM

Medtronic reported a surprising 59 percent boost in second-quarter profit Tuesday, as increased sales of implantable heart devices defied reports of weakening demand from competitors.

The sales gains during the quarter prompted the world's largest medical device maker to raise its full-year guidance, sending its shares up more than 7 percent.

The Minneapolis company earned $868 million, or 78 cents per share, in the quarter ended Oct. 30, up from $547 million, or 48 cents per share, a year ago. Excluding a litigation gain and other items, adjusted income totaled $850 million, or 77 cents per share.

Revenue jumped 8 percent to $3.84 billion from $3.57 billion.

Analysts expected profit of 74 cents per share on revenue of $3.75 billion, according to a survey by Thomson Reuters.

It was the second consecutive quarter in which the company beat Wall Street expectations.

"Sales outperformance could suggest market share stabilization after several consecutive quarters of erosion in these business," Leerink Swann analyst Rick Wise wrote in a note to investors.

Sales for the company's cardiac-pacing division, its largest, have been sluggish following safety concerns and reduced spending by hospitals.

Analysts largely expected another quarter of slow sales after rivals St. Jude Medical and Boston Scientific Corp. reported weakening demand for heart implants earlier this fall.

But Medtronic reported a 3 percent rise in sales of heart devices to $1.28 billion, including $754 million in sales of implantable cardioverter defibrillators, the company's best-selling products.

"If Medtronic can repeat this performance for several quarters, it will be a major improvement, in our view," said Lazard Capital Markets analyst Sean Lavin in a research note.

Defibrillators use electrical shocks to correct abnormal heart beats that could be deadly. Sales of pacemaker products, which use low-voltage electrical currents to keep hearts beating, were $498 million.

Wise said the company's results suggest device sales were impacted by a summer slowdown, but that overall demand remains strong.

Robust stent sales helped the company's cardiovascular revenue grow 17 percent to $696 million. Stents are tiny mesh-metal tubes used to prop open arteries after they have been cleared of fatty plaque.

Meanwhile, spinal revenue rose 4 percent to $862 million, beating growth of last three of four quarters.

Sales for the company's second-largest unit have mostly disappointed analysts, following difficulties integrating spine repair company Kyphon, a former competitor that Medtronic acquired in 2007.

"The company is working to address these issues, not only from the Kyphon end, but the product line was probably getting a little stale and they're introducing new products over the next year," said Edward Jones analyst Aaron Vaughan.

Sales of the neuromodulation unit rose 12 percent to $384 million. The devices are designed to treat pain and other conditions through by stimulating the nervous system.

Diabetes revenue rose 10 percent to $300 million, surgical technologies revenue grew 5 percent to $224 million, and physio-control revenue grew 25 percent to $94 million.

Looking ahead, Medtronic expects full-year profit between $3.17 and $3.22 per share. Analysts expect $3.15 in fiscal 2010 profit.

Medtronic shares rose $2.94, or 7.3 percent, to close at $43.25 Tuesday. Earlier the stock set a 52-week high of $43.65.