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38% growth in St. Judes profit fails to perk up investors pulses
Investors are nervous about slow defibrillator sales, but St. Jude could gain from Medtronic's troubles.
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Most days, earnings news that contains a 38 percent gain in profits would be something to cheer about.
But these days, Wall Street sees all kinds of trouble -- real and imagined -- when it surveys Minnesota's medical device firms.
St. Jude Medical Inc. found that out firsthand Thursday, when its shares sank 5.3 percent despite slightly better-than-expected financial results for the third quarter.
St. Jude Chief Executive Dan Starks assured investors in a conference call with analysts that he is "very confident" that the company's wire leads used in defibrillators will not experience the safety problems plaguing Medtronic Incorporated's recently recalled Sprint Fidelis leads.
If anything, the recall could present an opportunity for the Little Canada-based medical device maker to further grab sales from Medtronic in the $5 billion global market for implantable cardioverter defibrillators (ICDs), executives and analysts say.
"We think Medtronic will lose global ICD market share over the next 12 to 18 months," Glenn Novarro, an analyst with Bank of America, wrote in a research note. "This puts St. Jude in position for market gain with its strong product portfolio and improved distribution capabilities."
St. Jude said third-quarter profit jumped 38 percent to $160 million, or 46 cents a share, thanks to strong ICD sales. The company beat analysts' estimates by a penny. St. Jude also raised its annual profit forecast to a range of $1.78 to $1.79 a share from its earlier estimate of $1.74 to $1.78 a share
Nevertheless, St. Jude stock fell $2.43 to close at $43.12, a sign that investors, already spooked by Medtronic's recall, are worried about sluggish demand for ICDs.
St. Jude estimated that ICD sales for the year will total $1.257 billion to $1.287 billion, about $30 million lower than it originally expected. In a conference call with analysts, Starks said the smaller forecast reflected a broader slowdown in ICD sales, not Medtronic's recall.
"Investors are more focused on ICD guidance as management has tempered expectations," Glenn Reicin, an analyst with Morgan Stanley, wrote in a research note. St. Jude is "generally a bit disappointed with market growth."
Still, St. Jude executives remained upbeat. The company's new products and revamped sales and marketing teams position the company to grow, Chief Financial Officer John Heinmiller said in an interview.
"We are really built for growth," Heinmiller said. "We have the capability to have a much larger market share."
While Heinmiller said it's too early to assess the effect of the Medtronic recall, St. Jude could see some upside as doctors look for alternative devices, he said.
Last weekend, Medtronic said it will stop selling its Fidelis lead because wire fractures could have contributed to the deaths of five patients. The company said it was switching all of its production lines to Quattro, an older lead model.
In the conference call, Starks took pains to highlight the design differences between Fidelis and St. Jude's Riata leads.
"There are profound differences that give us a very high confidence that our Riata family of leads is very reliable, very different from Fidelis and not susceptible to the same ... problems that Medtronic has experienced," Starks said.
Medtronic's recall means the company is effectively shut out of the $200 million Japanese market, since Quattro has not yet gained regulatory approval in Japan. St. Jude executives say they are ready to pounce on the opening.
"We are very nicely positioned to step in wherever we can be most helpful to customers in Japan," Starks said. "We are good to go."
Thomas Lee • 612-673-7744
3rd quarter FY2007, 9/30
2007 2006 % chg.
Revenue $926.8 $821.3 +12.9
Income 160.2 115.5 +38.7
Earn/share 0.46 0.32 +43.8
9 months
Revenue $2,761.2 $2,438.6 +13.2
Income 440.8 393.6 +12.0
Earn/share 1.25 1.05 +19.0
Figures in millions except for earnings per share.
Thomas Lee • tlee@startribune.com
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