UPDATE 5-Medtronic still struggling with spine, ICD sales
* EPS ex-items 84 cents, meets Wall St consensus
* Spine products, ICD sales continue to struggle
* Shares down 2.6 percent
Feb 21 (Reuters) - Medtronic Inc reported disappointing quarterly results on Tuesday, reflecting continued weak demand for its implantable heart defibrillators and spine products, two of its biggest businesses.
The world's largest stand-alone medical device maker said sales in each of those units fell 9 percent in the fiscal third quarter, showing no improvement from the poor performance that has lasted for several years.
Medtronic's business has been hurt by a series of setbacks, most recently the weak global economy that has pressured governments to cut healthcare spending and kept patients out of the doctor's office.
"The year-over-year decline is not sustainable. We urgently need to see signs of improvement" in Medtronic's spine business, Chief Executive Officer Omar Ishrak told analysts on a conference call.
If improvement is not seen, he added, "we will need to assess our strategy and approach to this business." Ishrak said options include organic alternatives, meaning that the company would not necessarily look to sell the unit.
Shares of world's largest stand-alone medical device maker fell 2.6 percent to $39.90 in late afternoon trading on the New York Stock Exchange.
"Clearly he has opened the door to doing something differently. Those comments will be welcomed by the investor community," Tim Nelson, an analyst with Nuveen Asset Management, said.
In a telephone interview, Ishrak declined to say how long it may take for business to improve, but he noted that there are signs of stability in both the spine and implantable defibrillator, or ICD, markets. The units will also benefit as the comparison with year-earlier results gets easier over time.
INFUSE PRODUCT SALES DROP FURTHER
Medtronic sells a wide array of products used in spine surgery, including artificial discs, fusion systems, and biologics products, which stimulate the body to regrow bone, eliminating the need to harvest bone from another body part.
Taking advantage of global opportunities is one example of an initiative that has not been taken yet in the spine business, which was undermined by a larger-than-expected decline in Infuse sales, a genetically engineered bone graft.
Safety concerns over Infuse have grown in the last year since U.S. lawmakers began investigating whether doctors paid by Medtronic failed to report serious side effects, and independent researchers found a heightened cancer risk associated with the product.
"We'll look at things we can do organically ... adding to the business or divesting portions of the business," Ishrak said. He declined to elaborate.
"We realize that despite everything, we're still positioned well in spine. Overall it is still an attractive market and we are leaders in that market. We are still in the best position to grow and make a difference," Ishrak added.
Goldman Sachs analyst David Roman reckoned the softness in spine sales was likely due to a decline in procedures as patients put off treatment in a weak economy, and continued pricing pressure. He attributed slow European ICD sales to pressure on budgets for state-run health plans.
Medtronic reported total net earnings of $935 million, or 88 cents per share, for the third quarter that ended Jan. 27, compared with $924 million, or 86 cents per share, a year earlier.
Excluding items, earnings were 84 cents per share, matching the average estimate on Wall Street, according to Thomson Reuters I/B/E/S.
Quarterly net sales rose to $3.92 billion from $3.86 billion. Sales ICDs fell 9 percent to $674 million and sales of spine products declined 9 percent to $784 million.
For the full fiscal year, the company estimated earnings-per-share growth of 7 to 8 percent, excluding items.
Earnings per share were forecast at $3.44 to $3.47, including dilution of 4 cents to 6 cents from its acquisition of Ardian. The company's previous estimate was $3.43 to $3.50.
"The consensus of $3.45 (per share) appears reasonable," Chief Financial Officer Gary Ellis told analysts on the call.
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