* EPS ex-items 84 cents, meets Wall St consensus
* Spine products, ICD sales continue to struggle
* Shares down 2.6 percent
By Debra Sherman
Feb 21 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
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,
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
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
"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
Excluding items, earnings were 84 cents per share, matching
the average estimate on Wall Street, according to Thomson
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.