Medtronic cuts 2011 guidance on weaker demand
By MATTHEW PERRONE and TOM MURPHY, AP Business Writers
Indianapolis (AP) - Medtronic Inc., the world's largest medical device maker, reported fiscal first-quarter earnings Tuesday in line with Wall Street expectations, but weaker global demand for medical implants forced the company to slash 2011 earnings expectations.
The Minneapolis-based company reported weaker-than-expected sales across all its major divisions, including heart-shocking defibrillators, pacemakers and spinal repair products.
Revenue for the period fell 4 percent to $3.77 billion due in part to an unfavorable foreign currency impact and a $200-million benefit from an extra week in the same quarter last year.
Excluding one-time costs, the company earned $868 million, or 80 cents per share.
Those earnings met analyst estimates as polled by Thomson Reuters, though Wall Street expected higher revenue of $3.94 billion. Analysts typically exclude one-time items from their estimates.
"A softer global healthcare market impacted by decreased utilization and increased pricing pressure made for a difficult first quarter," Chairman and CEO Bill Hawkins said in a statement from the company.
In light of the sales slowdown, Medtronic scaled back its estimated 2011 revenue and earnings guidance.
The company said it now expects fiscal 2011 earnings per share to range between $3.40 and $3.48, with revenue growing between 2 percent and 5 percent on a constant currency basis.
In June, Medtronic expected fiscal 2011 earnings of between $3.45 and $3.55 per share with revenue growth ranging between 5 percent and 8 percent.
Medtronic shares fell $3.21, or 9.2 percent, to $31.78 in midday trading. Earlier in trading shares hit a 52-week low of $30.85.
For the first quarter, Medtronic reported global sales of its cardiac and vascular products fell 5 percent to $2.03 billion. Those sales actually increased 1 percent when adjusted for foreign currency and the extra week last year.
The company's cardiac division sells defibrillators and pacemakers, which together make up the company's largest franchise. Medtronic picked up share of the defibrillator market in the last quarter after rival Boston Scientific Corp. suspended sales of its products due to a regulatory paperwork oversight.
But with defibrillator sales of $722 million missing Wall Street estimates, Medtronic management acknowledged that they gave back market share.
"As you know, in this marketplace share is very sticky so we expected that when Boston was back in the market they would gain back a lot of the share," said Medtronic Chief Financial Officer Gary Ellis on a teleconference with analysts. "They gained it back faster than we expected."
Sales of the company's spinal products continued to slump, falling 9 percent to $829 million as surgeons performed fewer back surgery operations. When asked how Medtronic intends to revive the business, Medtronic CEO Bill Hawkins pointed to future implants that would offer more effective, less invasive alternatives.
"There is just a whole series of products which we believe are targeted right at where the market is going," said Hawkins. "So we are optimistic over the long run, but we are in a period now that's a bit uncertain."
Spinal devices make up Medtronic's second-largest franchise. Medtronic spent nearly $4 billion to acquire spinal implant maker Kyphon in 2007, though the unit has not performed up to expectations.
Including one-time charges, Medtronic said it earned $830 million, or 76 cents per share in the three months that ended July 30. That compares to net income of $445 million, or 40 cents per share, last year, when restructuring charges and legal fees weighed down performance.
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