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Medtronic 2Q Profit Falls 35 Percent On Costs

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MINNEAPOLIS (AP) — Medtronic, the world’s largest medical device maker, said Tuesday its fiscal second-quarter profit fell 35 percent as legal costs outpaced weak gains in medical device sales, though adjusted results still edged past Wall Street expectations.

The company spent $278 million on lawsuits related to defective heart devices recalled in October 2007. The company recalled the wires used with its Sprint Fidelis defibrillators because of a defect that could cause them to crack.

In the last quarter, Medtronic reported weaker-than-expected sales of pacemakers, stents and other medical implants, and warned investors that cutbacks at hospitals and stricter insurance payment policies could threaten long-term growth of the device sector.

While device sales remained weak in the second quarter, the company reported better-than-expected sales in businesses that had previously underperformed, particularly spinal implants.

“The demand for these products is still out there and very strong, even though it’s kind of a dynamic environment right now,” said Chief Financial Officer Gary Ellis, in an interview with the Associated Press. “The fact that it’s not getting any worse out there gives us the excitement that we are in the right markets and they will eventually return to their historical growth.”

The medical device maker, based in Minneapolis, said Tuesday its net income fell to $566 million, or 52 cents per share, from $868 million, or 78 cents per share, during the same period a year ago. Revenue rose less than 2 percent to $3.9 billion from $3.84 billion. The quarter ended Oct. 29.

The rise in sales was not enough to offset a 16 percent boost in expenses to $3.15 billion, driven by legal costs.

Excluding charges, Medtronic Inc. said it earned 82 cents per share. Analysts polled by Thomson Reuters expect earnings per share of 81 cents on revenue of $3.9 billion.

Sales of defibrillators and pacemakers fell 2 percent to $1.25 billion for the quarter, while sales of stents, heart valves and other heart implants grew 6 percent to $738 million, helped by sales in China, Latin America and other emerging markets.

Sales of restorative therapies, which include spinal, diabetes and other products, rose 2 percent to $1.81 billion. Within that group, spinal sales fell 1 percent to $850 million, but that was well ahead of analyst estimates for $825 million.

Medtronic spent nearly $4 billion to acquire spinal implant maker Kyphon in 2007 and sales have continued to lag behind Wall Street expectations.

“Our pipeline, which we’ve been talking about for some time, is starting to show results and is going to allow us to drive market growth and ultimately put us in position to gain share,” said Chief Executive Bill Hawkins.

Spinal procedures tend to be expensive and highly invasive and the rate of procedures has not kept pace with company estimates.

Despite improved performance, the company still scaled back its scaled back its overall growth expectations for the device market to 2-3 percent from 2-4 percent for the second half of the year.

Looking ahead, the company expects full-year profit between $3.38 and $3.44 per share, below its prior range of $3.40 to $3.48 per share. The estimate excludes any potential impact from the pending Ardian acquisition. Analysts expect profit of $3.41 per share, on average.

Late Monday, Medtronic announced it would buy the remaining 89 percent of blood pressure treatment maker Ardian Inc. that it doesn’t already own for $800 million in cash. The company’s technology uses radiowaves to treat hypertension that doesn’t respond to drug therapy.

Wells Fargo analyst Larry Biegelsen said the procedure “appears very safe and effective and represents a $1 billion plus opportunity that has the potential to move the needle for Medtronic.”

Medtronic shares slipped 65 cents to $34.08 in morning trading.

(© Copyright 2010 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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