St. Jude reported gains in earnings per share, but declines in cardiac rhythm sales may have dampened analysts' enthusiasm.
On Wednesday, St. Jude Medical Inc. offered some positive news.
Second-quarter 2012 earnings were up. And officials said it has gained market share in the U.S. implantable cardioverter defibrillator market.
So why did the shares fall 4 percent for the Little Canada-based medical technology company by midday?
"Wall Street looks not only at how you did in the second quarter, but your tone," said Thom Gunderson, a senior analyst with Piper Jaffray & Co. "St. Jude's tone seems a little more cautionary."
At the heart of that perceived caution may have been St. Jude's reported cardiac rhythm management (CRM) sales, which include defibrillators and pacemakers. CRM sales fell 6 percent compared to the second quarter of 2011. It's a hefty segment of St. Jude's business, with $746 million in sales making up more than half St. Jude's total reported net sales for the quarter.
The point is, Gunderson said, many analysts assumed that a years-long decline in cardiac rhythm sales had bottomed out. St. Jude's report may show that is not yet the case.
"They don't know," Gunderson said of the sales numbers. "There are a lot of different factors that are impacting the overall decline of procedures and hospital utilization. In the past, we didn't talk about unemployment relative to med tech companies. Now we do. There is enough unemployment -- and high deductible insurance -- that the cost of all of this in a tough economy has an impact."
Still, St. Jude officials pointed to some positive numbers. First, the company reported net earnings of $244 million for the second quarter of 2012, or 78 cents per share. Reported net earnings for the same quarter in 2011 were $241 million, or 72 cents per share. Net earnings were a penny higher than the market expected.
John Heinmiller, executive vice president and chief operating officer, said St. Jude had gained market share in U.S. defibrillator sales. And, he said, strong sales of St. Jude's new Quadripolar pacing system offset any negative sales impact that might have been triggered by the recalled Riata leads.
"There was a lot of intense focus on this topic," Heinmiller said. "So that is a positive coming out of the quarter."
In an interview Wednesday morning, Heinmiller said that company officials are hopeful that years of CRM declines will bottom out sometime in early 2013. "But we are trying to be cautious until we see some evidence of that," he said.
For St. Jude, even if those sales are flat, it could mean significant growth, Heinmiller said. Because of the company's strength in other areas -- and a growing share of the "replacement market" for cardiac devices -- Heinmiller said St. Jude could see high single-digit or low double-digit overall growth in 2013.
"We have a lot of confidence in that," he said. "That's our strategy."
Said Daniel Starks, St. Jude's chief executive: "All of St. Jude Medical's second quarter results fell within our previously announced guidance ranges. We continued to make good progress during the quarter implementing new product programs designed to accelerate our growth in 2013. We are focused on delivering innovative medical devices that both improve patient outcomes and reduce the cost of health care."
The company said it expects its adjusted net earnings for the third quarter of 2012 to be in the range of 80 to 82 cents per share and for full-year 2012 adjusted net earnings to now be in the range of $3.40 to $3.45.
Gunderson agreed that St. Jude's new product cycle "appears to be gaining market share." But, repeating the cautious theme yet again, he said, "the final tally is probably four or five weeks from now."
James Walsh 612-673-7428
Figures in millions except for earnings per share.Select Comfort Corp. (SCSS) Makes and sells Sleep Number beds and bedding. The Sleep Number mattress allows individuals to adjust firmness and support on each side of the bed. 2nd quarter FY2012, 6/30 2012 2011 % chg. Revenue $205.2 $161.5 +27.1 Income 17.0 11.3 +50.3 Earn/share 0.30 0.20 +50.0 6 months Revenue $467.6 $354.5 +31.9 Income 39.4 27.9 +41.3 Earn/share 0.69 0.50 +38.0 Figures in millions except for earnings per share.