* Net EPS 63 cents vs 82 cents a year ago
* Excluding items, EPS 88 cents, matching Street view
* Revenue up 2 pct, but spine, ICD sales flat to lower
* Shares jump 2.0 percent
By Debra Sherman
Nov 20 Medtronic Inc, the world's
largest maker of medical devices, reported lower quarterly
earnings as legal and other expenses ate into profits, but signs
that its key heart and spine markets were stabilizing sent its
shares higher on Tuesday.
Medtronic, a maker of implantable heart pacemakers and
defibrillators, insulin pumps and devices used in spinal
surgery, said its net earnings were $646 million, or 63 cents
per share, in its fiscal second quarter that ended Oct. 26, down
from $871 million, or 82 cents per share in the year-ago period.
Excluding one-time items, earnings were 88 cents per share,
matching analysts' average forecast.
Quarterly revenue increased 2 percent to $4.095 billion.
Yet revenue from its two biggest businesses, heart rhythm
management and spine, was flat to lower.
The bright spot in the quarter was provided by indications
that these two markets - which together make up about half of
its total revenue - were stabilizing, said Chief Executive Omar
Ishrak in a telephone interview.
"Signs of stabilization in (cardiac rhythm management) and
spine have been encouraging. In those markets, we have gained
share," he said.
Cardiac Rhythm Disease Management revenue, which includes
sales of pacemakers and defibrillators, was flat at $1.23
billion, excluding the impact of foreign currency, or down 3
percent including the currency impact.
Sales of implantable heart defibrillators were the highest
they have been in 10 quarters and sales of leads rebounded to
levels not seen since the company recalled its Fidelis lead 5
Spine revenue was $782 million in the quarter, 5 percent
lower excluding foreign currency translations, or down 7 percent
including the currency impact.
Ishrak said his biggest disappointment in the quarter was
"Chinese growth was 11 percent.. That could have been
better," he said.
Medtronic's recent acquisition of Chinese orthopedics device
maker Kanghui Holdings should help bolster growth, he added.
The company reiterated its outlook for earnings of $3.62 to
$3.70 per diluted share for fiscal 2013. The company said it
expects revenue growth of 3 percent to 4 percent, excluding the
impact of foreign currency for fiscal 2013. The company had
previously provided a revenue growth outlook of 2 percent to 4
A CONSERVATIVE OUTLOOK
Ishrak characterized the outlook as conservative, noting
there are many uncertainties in the United States and in Europe
that could trip up the company's performance in the remainder of
its fiscal year.
He expressed concern about a decline in medical procedures
in Europe, the potential for pricing pressure on its medical
devices, the possibility of sequestration and the impact of the
Affordable Care Act in the United States.
"There's a lot of uncertainty," Ishrak said.
Analyst Jeff Jonas of Gabelli Health and Wellness Trust
Mutual Fund, which owns Medtronic shares, called the quarter
"solid" and sees the company as being conservative in its
"They are not assuming anything gets better in the second
half (of Medtronic's fiscal year)," he said.
Josh Jennings, an analyst with Cowen & Co., said the outlook
is reasonable given all of the challenges around the world,
including a slowdown in economic activity in Europe and the
United States, which would likely lead to fewer medical
"The two anchors that have been pulling down top-line
performance are spine and the ICD franchise....and declines in
those divisions are moderating and that should continue," said
Jennings, who has an "outperform" rating on Medtronic shares.
Medtronic shares were up 57 cents to $42.38 in midday
trading on the New York Stock Exchange.