--Medtronic earnings rise, sales edge higher amid pressure from
currency rates
--Company highlights signs of stability in key markets, despite
continued sales declines for some products
--Full-year guidance unchanged as executives remain cautious
(Updates throughout with details on results and outlook, company
comments.)
By Jon Kamp
Medtronic Inc. (MDT) said Tuesday that its fiscal first-quarter
earnings rose 5.2% as revenue edged up, and the medical-device
maker also cited signs of stability in sluggish heart and
spinal-device markets.
Officials at the Minneapolis-based company were still cautious
about the path ahead, noting continued vulnerability in the global
economy, plus a longer trend of volatility in key device markets.
Medtronic has been dealing with slow sales conditions for some time
for products like implantable defibrillators.
"Although we were encouraged by [first-quarter] results, we
recognized that we need to deliver this kind of performance
consistently over the long term," Omar Ishrak, Medtronic's chief
executive, said on a conference call with analysts.
Medtronic shares recently traded down 17 cents to $41.28,
although they are trading around the highest levels since mid-2011.
The company backed its guidance for the fiscal year running through
next April, even though its sales growth for the latest quarter
exceeded its target for the full year.
Company officials stressed that they would remain cautious until
they see more signs that device markets remain stable. "We're
hopeful that we're being conservative," Chief Financial Officer
Gary Ellis said on the call.
For the quarter ended July 27, Medtronic reported a profit of
$864 million, or 83 cents a share, up from $821 million, or 77
cents a share, a year earlier. Excluding convertible-debt and
acquisition-related impacts, per-share earnings rose to 85 cents
from 79 cents. Analysts surveyed by Thomson Reuters had expected 85
cents.
Revenue also just about matched expectations, rising 1.6% to
$4.01 billion, or 5% excluding the impact of unfavorable currency
rates.
Mr. Ishrak expressed some disappointment with Medtronic's sales
growth in emerging markets, which at 14%, excluding currency
impacts, was below the company's long-term goal of 20%. But the
company still maintains that target for the fiscal year and expects
to eventually hit 20% growth consistently on a quarterly basis, the
CEO said.
Sales of implantable defibrillators, known as ICDs, slipped 3.2%
to $675 million, but were flat excluding the currency impact. Sales
of the devices, which shock hearts to stop potentially deadly
rhythm distortions, have long been under pressure from government
scrutiny of implant practices in the U.S., austerity measures in
Europe and general economic turmoil.
But Medtronic noted some positive signs in the U.S. market,
which the company said showed "continued stabilization." While the
company's domestic ICD sales declined about 3% in the recent
quarter, this was better than an estimated 4% decline for the
market, Mr. Ishrak noted. Medtronic also believes the rate of
implants is actually growing slightly, and that revenue has been
held back by hospitals carefully managing inventory.
Medtronic is the biggest company in the $10 billion market for
heart-rhythm devices it shares with St. Jude Medical Inc. (STJ) and
Boston Scientific Corp. (BSX). That market also includes
pacemakers, where Medtronic saw weaker sales that it mainly pegged
to declining product prices.
Sales in Medtronic's spinal business slipped nearly 5% amid a
sharp 19% decline in a category that mainly includes the company's
troubled "Infuse" bone-growth product. A medical-journal article
last year raised questions about Infuse's safety and effectiveness,
pressuring sales. The company has been awaiting data from an
independent Yale University assessment to help sort out Infuse
issues, and officials on Tuesday said they expect Yale's results in
the coming months.
Beyond Infuse, Medtronic said its core spinal-device business
has also shown signs of stability. U.S. results for the core-spinal
business were flat, matching overall market results. The spinal
market has faced pressure from issues like price declines and
insurers pushing back against certain procedures.
"Our business seems to be turning the corner as our new products
and procedures gained critical mass," Mr. Ishrak said on the
conference call.
Elsewhere, Medtronic said business for drug-coated stents--tiny
devices used to prop open heart arteries--benefited from a new
device released in the U.S. earlier this year that has posted
"significant share gains" over competitors.
The company also disclosed Tuesday that its neuromodulation
business recently received a Food and Drug Administration warning
letter related mainly to issues with complaint-handling processes.
The company is working with the FDA and doesn't anticipate a
material impact on financial results, Mr. Ellis said.
(Tess Stynes contributed to this report.)
-Write to Jon Kamp at jon.kamp@dowjones.com
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