Medtronic profit falls on charges for blood pressure device

Reuters

By Susan Kelly

Feb 18 (Reuters) - Medtronic Inc on Tuesday reported a lower quarterly net profit after it took charges for a blood pressure-lowering device that failed to prove effective in a major clinical study.

Revenue came in slightly ahead of analysts' expectations, and earnings before special items met estimates as stronger sales of diabetes devices helped offset disappointing demand for pacemakers and implantable cardioverter defibrillators, or ICDs.

Shares of Medtronic, the world's largest stand-alone medical device maker, were down 1.5 percent at $56 in midday trading on the New York Stock Exchange.

The stock had risen 40 percent in 2013. Investors have been expecting the economic recovery to lift sales of medical devices, which slumped in recent years as demand for healthcare declined.

"There is hope that we will see better performance out of this group, and we just simply aren't seeing it on a wholesale basis," said Jefferies & Co analyst Raj Denhoy.

Medtronic posted flat worldwide sales of ICDs, which detect abnormally fast heartbeats and deliver an electric shock to restore normal rhythm. Some analysts had been looking for a slight boost to sales of the company's biggest product category.

Chief Executive Officer Omar Ishrak said the U.S. market for ICDs and other devices continued to stabilize in the company's third quarter, which ended on Jan. 24.

"Overall U.S. demand was pretty good, even though January, after the holidays, was a little soft," he said in an interview.

Net earnings fell to $762 million, or 75 cents a share, in the quarter from $988 million, or 97 cents a share, a year earlier.

Medtronic recorded pretax charges of $200 million, primarily for a blood pressure treatment known as a renal denervation system. The company is still evaluating its long-term plans for the device, which it continues to sell in Europe.

Excluding the charges and other one-time items, Medtronic earned 91 cents a share, in line with the analysts' average estimate, according to Thomson Reuters I/B/E/S.

"Though third-quarter results did come basically in line with expectations overall, Medtronic did deliver lower-than-expected results in certain key product lines," Leerink analyst Danielle Antalffy said in a note to clients.

Revenue rose 3 percent to $4.16 billion, edging past Wall Street expectations of $4.15 billion.

Medtronic's ICD sales were flat at $655 million. Pacemaker sales fell 4 percent to $439 million. Medtronic competes against Boston Scientific Corp and St Jude Medical Inc in the heart rhythm management market.

Sales of structural heart products, which include replacement valves, rose 3 percent to $281 million.

The company gained U.S. regulatory approval in January for its CoreValve, which is implanted in a less-invasive procedure than traditional open-heart surgery. It has become the first such device to compete against Edwards Lifesciences Corp's Sapien valve in the United States.

Medtronic is training physicians on the procedure and gradually ramping up sales of the product, which it expects to become an important area of growth.

Spinal product sales slipped 1 percent in the quarter to $744 million. Sales of diabetes products climbed 16 percent to $436 million, boosted by the rollout of a new insulin pump that stops delivery when a sensor reaches a preset threshold.

Sales in emerging markets, an area of increasing focus for the company, rose 10 percent to $521 million. The jump was below the company's targeted percentage rate in the mid to high teens due to pressures in Eastern and Central Europe, Medtronic said, but it expects a return to stronger growth in the region in the coming quarters.

Medtronic tightened its fiscal 2014 earnings forecast to a range of $3.81 to $3.83 a share, compared with its previous outlook of $3.80 to $3.85 and analysts' estimates of $3.82. It said it still expected revenue growth of 3 percent to 4 percent.

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