(Reuters) - Medtronic Inc (MDT.N) 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 percent.
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 (BSX.N) and St. Jude Medical Inc STJ.N 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 Reuters I/B/E/S.
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.
Reporting by Susan Kelly in Chicago; Editing by Maureen Bavdek and Jeffrey Benkoe