VOL. 122 | NO. 222 | Wednesday, November 21, 2007
Medtronic Second Quarter Earnings Dip 2 Percent
By JOSHUA FREED | AP Business Writer
MINNEAPOLIS (AP) - Medical device maker Medtronic Inc. said Monday that its second-quarter profits dipped 2 percent after it recalled wires for connecting its defibrillator to patients' hearts.
Medtronic said it earned $666 million, or 58 cents per share, down from $681 million, or 59 cents per share, during the same period last year. Revenue of $3.12 billion was up 1.5 percent from $3.08 billion a year ago.
Analysts polled by Thomson Financial had predicted earnings of 56 cents per share on $3.1 billion in revenue for the quarter ended Oct. 26.
Chief Financial Officer Gary Ellis said in a conference call that the recall of the Sprint Fidelis heart wire hurt second-quarter earnings by 9 cents to 10 cents per share. He said the recall's impact will drop off in future quarters as Medtronic ramps up its production of an older wire that the Sprint Fidelis lead was meant to replace.
"This was a tough quarter," President and CEO Bill Hawkins said. "We feel we have made solid progress over the past five weeks" since the recall was announced, "but clearly, much work still remains."
Medtronic reported $1.15 billion in revenue in its largest unit, Cardiac Rhythm Disease Management, which makes pacemakers and defibrillators. The recall hurt revenue in that unit by $130 million, and it also absorbed $31 million in costs to write off the Sprint Fidelis leads recalled during the quarter. Last month, Medtronic had predicted a $150 million to $250 million loss of second-quarter revenue and inventory write-off costs of $15 million to $20 million.
When the Sprint Fidelis problems were discovered, Medtronic moved quickly to go back to its Sprint Quattro lead, including seeking regulatory approval to sell it in Japan. Hawkins said the company expects approval for Japanese sales by April.
One Medtronic product actually has benefited from the recall: CareLink, Medtronic's system for monitoring its implanted defibrillators. The potential to spot problems such as the broken Sprint Fidelis wires has prompted more interest in CareLink, said Pat Mackin, president of the Cardiac Rhythm Disease Management unit.
"I can tell you that I've personally been to centers that were not interested in CareLink, and they want to put every single patient on it," he said.
Sales grew in other Medtronic units. Spinal revenue rose 10 percent to $660 million, and CardioVascular revenue (which includes stents) grew 8 percent to $490 million.
Medtronic said revenue from outside the U.S. grew 12 percent to $1.17 billion, including $73 million from favorable currency exchange rates.
Medtronic doesn't give quarterly guidance, but Ellis said he would not be surprised if the consensus of analysts remained around $2.52 per share for the full year. Analysts polled by Thomson Financial were predicting full-year earnings of $2.54 per share. Ellis said revenue should accelerate in the second half of the year.
Medtronic shares fell 52 cents to close at $45.25 before the results were released. In after-hours trading, they rose $1.25 to $46.50.
For the first half of the year, Medtronic said it earned $1.34 billion, or $1.17 per share, up from $1.28 billion, or $1.10 per share, a year ago. Revenue rose to $6.25 billion, from $5.97 billion during the same period a year ago.
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