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Medtronic profits miss, and stock drops 13%
The Fridley-based firm's spine business as well as sales of heart defibrillators disappointed; production issues also contributed.
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Medtronic's stock plunged to its lowest level in a decade Tuesday after the Fridley-based company reported quarterly earnings that missed analysts' estimates.
The medical technology giant also said the U.S. Department of Justice is investigating the use of its popular bone graft product, Infuse, in ways not approved by the Food and Drug Administration. The company said it is cooperating with the investigation.
Shares of Medtronic plummeted on the news to $31.60, down $4.82, or 13 percent -- the lowest close since 1998, and the biggest one-day decline since 1984.
The company's spinal biologics division, its newly acquired Kyphon spine business and its heart defibrillator business reported disappointing results, according to Jan Wald, an analyst with Stanford Group Co.
Yet Medtronic CEO Bill Hawkins remains bullish about the company's prospects going forward.
"I'm not happy with what happened in this quarter,'' he told Wall Street analysts in a conference call Tuesday. "But the trends are positive."
Overall, net income in the fiscal second quarter, which ended Oct. 24, fell 14 percent to $571 million, or 51 cents a share, from $666 million, or 58 cents a share, the previous year. The company booked a $229 million charge for a lawsuit over a heart stent patent lost to Johnson & Johnson, and $37 million for another patent case.
Earnings, excluding legal costs, were 67 cents per share, 4 cents below analysts' estimates.
Sales for the quarter increased 14 percent to $3.69 billion.
Internal problems
Revenue in the company's largest division -- which makes pacemakers and heart defibrillators -- increased 8 percent to $1.2 billion. While sales of $30,000 defibrillators grew 13 percent to $724 million in the quarter, analysts said Medtronic lost market share to rivals Boston Scientific Corp., with operations in Arden Hills, and Little Canada-based St. Jude Medical Inc.
The company's floundering Physio-Control business, which makes external heart-shocking defibrillators, as well as its upstart neurological business, which makes spinal cord and deep brain stimulators to treat chronic pain and Parkinson's Disease, experienced production problems.
"You'd expect the company to talk about the macro issues facing it, but they were talking about fundamental goof-ups,'' said Timothy Nelson, an analyst with FAF Advisors in Minneapolis. "This is so disappointing."
In addition, the company said it is still struggling to integrate Kyphon, a spine-device company, which it bought for $4.2 billion in 2007.
Medtronic also said it expects fiscal 2009 sales to shrink by up to $400 million, as a stronger dollar makes its products more expensive for foreign buyers. Fiscal-year revenue will be $14.6 billion to $15 billion, down from the $15 billion to $15.5 billion previously forecast.
Earnings per share for the year will be $2.90 to $2.98, down from $2.95 to $3.02, which the company had projected in August.
Bloomberg News contributed to this report.
Janet Moore • 612-673-7752
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