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VOL. 128 | NO. 99 | Tuesday, May 21, 2013

Medtronic Sees Revenue Rise; Spine Sales Falter

By Jennifer Johnson Backer

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Medtronic Inc. said Tuesday, May 21, its fourth-quarter revenue rose, aided by increasing sales of pacemakers and defibrillators. The figure beat expectations from analysts, who had expected demand to wave.

The Minneapolis-based medical device maker said fourth-quarter sales grew 3.8 percent to $4.46 billion, compared with $4.3 billion a year earlier. Defibrillator revenue gained 1.5 percent to $755 million in the three months ended April 26, from $744 million a year earlier. Pacemaker sales rose 2.6 percent to $505 million, from $492 million during the same year-earlier period.

Medtronic Inc. said fourth-quarter revenue rose, aided by increasing sales of pacemakers and defibrillators, beating analyst expectations.

(Daily News File Photo: Lance Murphey)

Sales of products in Medtronic’s Coronary, Structural Heart and Endovascular units also all gained in the fourth quarter.

Medtronic Spine, which is based in Memphis, reported fourth-quarter global Spine revenue of $811 million, compared with $818 million a year earlier. The company said Spine revenue was little changed from last year after adjusting for global currency changes. Core Spine revenue was $671 million in the fourth quarter, compared with $677 million a year earlier. Medtronic said Core Spine revenue gained 2 percent globally and 3 percent in the U.S. after adjusting for currency changes.

“We delivered market share gains again in Core Spine, and revenue continued to stabilize in our fourth quarter,” said Doug King, senior vice president and president of Medtronic Spine.

King said the spinal division’s performance was “driven by procedural innovations and recent product introductions.”

The Associated Press reported the spinal business “has been hurt by revelations about the company's handling of studies and marketing of its protein bone graft Infuse. Last year, a Senate investigation concluded that the company helped write and edit medical journal articles about the graft that downplayed its risks.”

In April, Medtronic Spine announced it would reduce overall costs by 5 percent through a variety of measures, including employee layoffs. The company said it would eliminate about 60 Memphis jobs which it attributed to increased pricing pressure, more complex customer device purchasing processes, expanded medical device governmental review times and requirements, and the medical device excise tax.

Medtronic Spine is the second-largest division at Medtronic, employing about 1,300 Memphis employees and 5,600 worldwide. The spinal division makes products and technologies that treat orthopedic and spinal conditions.

The company forecast fiscal 2014 earnings of $3.80 to $3.85 a share on revenue growth of 3 to 4 percent on a constant currency basis, which was in line with analyst expectations.

Looking at the company as a whole, Medtronic revenue grew even as overall profit fell 2.2 percent after expenses tied to employee layoffs, restructuring, litigation, manufacturing consolidation, and other cost-cutting measures.

Medtronic took a $172 million restructuring charge related to its plan to eliminate about 2,000 employees. Nearly two-thirds of those cuts already are finished and were split between U.S. and overseas markets.

“These fourth quarter results were a strong finish to a solid fiscal year, and more importantly, represented another step toward our goal of delivering consistent and dependable growth, and I am proud of the performance of our entire global team,” said Medtronic CEO Omar Ishrak.

Fourth-quarter profit slumped 2.2 percent to $969 million, or 95 cents a share, from $991 million or 94 cents a share, a year earlier, Medtronic said. Excluding one-time items and gains the company would have earned $1.12 billion, or $1.10 per share. That was better than estimates of analysts polled by FactSet who predicted earnings per share of $1.03 on revenue of $4.38 billion.

Global medical device makers, including those with a large presence in Memphis like Medtronic and London-based Smith & Nephew PLC, face pressure as U.S. hospitals push for lower prices and European austerity plans trim procedures and profit.

That’s led CEOs like Medtronic’s Ishrak to look to emerging markets like China for growth. Last year, the global medical device maker increased its Chinese presence with the purchase of China Kanghui Holdings, a maker of spine and joint products.

Emerging market sales climbed 12.5 percent to $521 million, from $463 million a year earlier, driven by growth in China and Eastern Europe. Overall, sales overseas accounted for about 47 percent of Medtronic’s global revenue in the fourth quarter, the company said.

The Associated Press contributed to this report.

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