Medtronic net up, but weak spine-product sales weigh
(Reuters) - Medtronic Inc (MDT.N) reported higher quarterly earnings on Tuesday, but shares fell on disappointment over continued weakness in its key market for spine products.
The world's largest maker of medical devices forecast higher earnings and revenue for the new fiscal year, in line with analysts' estimates.
"I think people were hoping for better guidance, not just at the (average)forecast," said Michael Matson, an analyst with Mizuho Securities USA. He also said the quarterly results were boosted by a lower tax rate, adding that this is not an ideal way to beat expectations.
Its shares were down 1.6 percent to $37.09 in afternoon trading.
Chief Financial Officer Gary Ellis told a conference call that analysts' earnings estimates for the fiscal first quarter, begun April 28, were too high.
"For whatever reason, the consensus has (earnings up) 10 percent in the first quarter and 2 percent in the fourth quarter," Ellis said in a telephone interview. "A few cents need to be shifted around."
Chief Executive Omar Ishrak said he saw more stable market conditions ahead for Medtronic's key products, including implantable heart defibrillators and pacemakers, heart stents and products used in spinal surgery.
While certain products in the spine division will continue to be a drag, management still has hope the division's performance will improve.
"We are asking, 'What are the issues in this market?' rather than just giving up on it," said Ishrak, who was also interviewed by Reuters by phone.
"Overall, the spine market is still a good market," Ellis added. "We're changing our strategy to get back market leadership."
Medtronic's spine business generated 21 percent of the company's total revenue in fiscal 2012.
The company also said it plans to wring out $1 billion of costs over the next five years. Cutting costs out of manufacturing is a key initiative, Ishrak said.
Research and development costs should remain relatively steady around 9 percent of sales, and management said it did not expect a reduction in net headcount at the company.
The company, he said, would be shifting resources. In the latest quarter, it took at $118 million pretax charge for a restructuring that would eliminate 1,000 positions, but it would add at least as many jobs in emerging markets.
Medtronic expects earnings of $3.62 to $3.70 per share in the current fiscal year, on revenue growth of 2 percent to 4 percent from $16.18 billion last year.
On average, analysts' average forecast for fiscal 2013 is $3.66 per share on revenue of $16.53 billion, according to Thomson Reuters I/B/E/S.
In the fourth quarter, ended April 27, net earnings were $991 million, or 94 cents per share, compared with $776 million, or 72 cents per share, a year earlier.
Excluding one-time items, earnings were 99 cents per share, a penny above the analysts' average estimate compiled by Thomson Reuters I/B/E/S.
Revenue rose to $4.3 billion from $4.1 billion on stronger sales of insulin pumps, heart valves and heart stents.
Its spine division continued to struggle with weak demand, particularly for its Infuse product, a bone graft paste that is used in spinal surgery.
The product's safety was questioned last year by a medical journal that said the company failed to disclose payments to doctors who authored studies on the product. Earlier this month, Medtronic said the U.S. government had closed its investigation into Infuse.
Implantable heart defibrillator sales slipped, but not as much as expected, and the company said it expects these sales to be flat to slightly lower in the current fiscal year.
Derrick Sung, an analyst at Bernstein Research, said he now estimates the U.S. market declined 6 percent in calendar year 2012, with Medtronic and competitor St Jude Medical Inc (STJ.N) growing faster than the overall market. Sales of implantable defibrillators grew 1 percent outside the United States, which was a modest improvement from Medtronic's 1 percent decline seen last quarter.
(Reporting By Debra Sherman in Chicago 312 408 8134; Editing by Lisa Von Ahn, John Wallace and M.D. Golan)
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