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Despite what it termed "a tough quarter," medical device giant Medtronic surpassed Wall Street's expectations Monday with second-quarter earnings of $666 million, or 58 cents per share.

But in a conference call with analysts, Medtronic did not dispel questions about its growth prospects after last month's recall of its Fidelis lead, a wire that connects a patient's heart to an implantable defibrillator that helps control dangerously fast heartbeats.

The recall cut $130 million from anticipated second-quarter revenue, Medtronic said. Actual second-quarter sales of $3.12 billion rose 1.5 percent from $3.08 billion a year ago. Earnings were down from $681 million, or 59 cents per share, a year ago.

Analysts had expected earnings of 56 cents per share for this year's second quarter.

The impact of the recall was at the low end of the range Medtronic gave analysts last month. It had warned of a potential $150 million to $250 million loss of second-quarter revenue and an inventory write-off costing of $15 million to $20 million (actual cost $31 million). Still, the episode is taking a toll on the implantable defibrillator market, some analysts said.

"They did not do quite as badly in the quarter as the early view of the Fidelis situation suggested, but it's pretty clear that the implantable defibrillator market remains in a muddle," said Phil Nalbone, an analyst with RBC Capital Markets in San Francisco.

That's not all Medtronic's fault, because the market has been flat for a year and a half as a result of product quality issues at several manufacturers, he said.

"But Medtronic's conference call with analysts did not give much predictability to the implantable defibrillator market, and that will hold back the stock performance of the three companies in the business, Medtronic, St. Jude and Boston Scientific," Nalbone said.

Medtronic CEO Bill Hawkins agreed that the recall "created uncertainty" in the implantable defibrillator market, but said the company's long-term prospects would not be hurt. "Analysts take a very short-term view."

Implantable defibrillators typically make up about 25 percent of Medtronic's revenue, although in the second quarter that number was down to just over 20 percent, said Gary Ellis, Medtronic's chief financial officer.

Investors reacted favorably to the earnings, which were released after Monday's closing. Medtronic stock closed at $45.25, down 52 cents, or about 1 percent, but rose in after-hours trading to $46.50, up $1.25, or nearly 3 percent.

In an interview, Hawkins said Medtronic's growth would "see significant acceleration" in the second half of the fiscal year, which ends in April. One of the chief contributors is expected to come from its new drug-coated stent (which helps keep arteries from becoming blocked) that the Food and Drug Administration is expected to approve by the end of the year.

"That's a $2 billion market in the U.S. where we get zero revenue today," he said. "If we get approval in December, we would then have four or five months to market that stent in the back half of the year."

Steve Alexander • 612-673-4553

2nd quarter FY2008, 10/26

2008 2007 % chg.

Revenue $3,124.0 $3,075.0 +1.6

Income 666.0 681.0 -2.2