By Susan Kelly
Aug 20 Medtronic Inc on Tuesday reported
a first-quarter profit in line with expectations on solid growth
in emerging markets, but soft U.S. demand for implantable heart
defibrillators weighed on its shares, which slumped more than 2
Revenue in the quarter came in below analysts' estimates,
dragged down by a 3 percent decline in sales of implantable
cardioverter defibrillators (ICDs), a key product line.
Competitors Boston Scientific Corp and St. Jude Medical
Inc had better ICD sales, raising expectations for
Medtronic, analysts said. ICDs use electrical pulses to help
control life-threatening irregular heartbeats.
The company, whose products range from pacemakers and stents
to insulin pumps and brain stimulation devices, reiterated its
outlook for both sales and profit for the fiscal year.
Chief Executive Omar Ishrak said on a conference call that
new ICDs, pacemakers and spinal devices to be launched in the
coming quarters would bolster results.
Medtronic has focused on increasing its presence in
faster-growth emerging markets like China, India and Latin
America as the weak U.S. economy and efforts to reduce
healthcare spending pressure the industry.
"We are confident in both our outlook for the remainder of
the year and our long-term competitive position in the changing
healthcare environment," Ishrak said.
The Minneapolis-based company said net earnings rose to $953
million, or 93 cents per share, in the first quarter ended July
26, from $864 million, or 83 cents per share a year earlier.
Excluding special items, Medtronic earned 88 cents a share,
in line with the average analyst estimate, according to Thomson
Total revenue rose 2 percent to $4.08 billion. Sales in
emerging markets climbed 15 percent to $504 million.
Overall sales of ICDs declined 3 percent to $655 million,
but pacemaker sales were up 2 percent to $474 million. Sales of
spinal products fell 3 percent to $765 million.
Sales of its biologic bone-growth stimulator for spines
declined 11 percent, hurt by the publication of an independent
review that found its Infuse product was associated with a
slightly increased risk of cancer. Infuse is a genetically
engineered protein that is surgically placed where new bone is
needed to stimulate growth and healing.
On the call, Ishrak defended the product, saying the Yale
University study provided further evidence that Infuse was a
safe and effective treatment for approved indications.
In addition, a separate analysis published in the online
edition of the journal Spine found no cancer risk associated
with the use of the product in spine fusion surgery.
"Sales in the spinal business continue to deteriorate, where
some people were expecting it to stabilize," said Aaron Vaughn,
an analyst with Mid-Continent Capital, which has $1.9 billion
under management but does not own Medtronic shares.
Vaughn said Medtronic's results suggested U.S. demand for
healthcare services is stable but not rebounding.
Medtronic forecast fiscal 2014 earnings of $3.80 to $3.85
per share and revenue growth of 3 percent to 4 percent excluding
the impact of foreign currency fluctuations.
Ishrak said Medtronic aims to generate 20 percent growth in
emerging markets over the longer term as the regions become an
increasingly important source of revenue.
Medtronic shares fell $1.26, or 2.3 percent, to $52.84 on
the New York Stock Exchange.