Medtronic Fiscal 1Q Profit Slips 1 Percent
MINNEAPOLIS (AP)— Medtronic Inc., the world’s largest medical device maker, saw its fiscal first-quarter earnings slip 1 percent as challenges in two of its biggest businesses countered overseas revenue gains.
Sales to international markets like Asia and Latin America are growing by double-digits, but not enough to offset deteriorating demand in the U.S., where tighter hospital budgets and safety concerns have hurt sales of the company’s heart and spinal devices.
The Minneapolis-based company said net income fell to $821 million, or 77 cents per share, from $830 million, or 76 cents per share.
Adjusted earnings, which exclude one-time items, were 79 cents per share, for the quarter that ended July 29.
Medtronic reported that international business accounted for 46 percent of its revenue, and sales in emerging markets like China and the middle east grew 30 percent as reported or 25 percent on a constant currency basis. Medtronic’s implants can cost tens of thousands of dollars and the U.S. has historically contributed the vast majority of its revenue. The company’s new CEO and Chairman Omar Ishrak has stressed the importance of expanding Medtronic’s business internationally.
“What we’re seeing is that outside the U.S., that’s where our markets are still growing,” said Chief Financial Officer Gary Ellis, in an interview with The Associated Press. “As we go forward I think you’re going to see that increase, and there’s no reason you shouldn’t see a higher percentage of the total outside the U.S.”
International sales helped push the company’s revenue 7 percent to $4.05 billion, though most of the increase was attributable to favorable foreign currency rates.
Analysts surveyed by FactSet expected, on average, earnings of 79 cents per share on revenue of $3.98 billion. Analysts typically exclude one-time items from their estimates.
Improved sales internationally and currency rates could not offset weakening demand for the company’s two biggest products: heart defibrillators and spinal implants. Sales for implantable cardioverter defibrillators, or ICDs, fell 8 percent on a constant currency basis to $697 million, as procedure volumes fell in the United States. ICDs treat rapid heartbeats.
Medtronic is counting on its next-generation ICD, Protecta, to prop up weakening sales of the franchise. The device is designed to avoid painful, unnecessary shocks to patients. Ellis estimated the company has already gained a small percent of market share following the device’s launch this spring.
“The U.S. ICD market is very soft as far as implants, but Protecta has allowed us to keep pricing flat versus declining, and it’s helping us pick up share,” Ellis said.
Sales from the company’s spinal business fell to $825 million from $829 million, even though international sales in that segment grew 7 percent. That business took a big publicity blow earlier this year when a medical journal alleged that Medtronic downplayed the risks of its InFuse spinal repair protein and failed to disclose millions of dollars in payments to the authors who wrote the initial studies of the product. Medtronic executives said they expect spinal sales to decline by single digits as the year progresses.
Medtronic reaffirmed the fiscal 2012 forecast it made in May. The company expects earnings of $3.43 to $3.50 per share on revenue growth of 1 to 3 percent, or to $16.1 billion to $16.41 billion.
Analysts expect, on average, $3.46 per share on revenue of $16.57 billion.
The quarter marks Ishrak’s first as Medtronic chairman and CEO. Ishrak, former head of General Electric’s health care unit, joined the medical device maker in June. Ishrak is only the second CEO in Medtronic’s 60-year history to come from outside the company. The last time the company was led by a non-Medtronic executive was in 1985, when Pillsbury executive Win Wallin became CEO and chairman.
With Medtronic trailing competitors in developing new versions of stents, heart valves and other key products, analysts hope Ishrak will focus on cost controls, restructuring and selling off underperforming business units.
Company shares climbed $1.19, or 3.8 percent, to $32.37 in morning trading.
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