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St. Jude Medical reports earnings decline in 3rd quarter
The Little Canada med-tech company reported slower sales of defibrillators and pacemakers.
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St. Jude Medical's quarterly earnings report Wednesday hinted at something that most everyone in health care already knows: Hospitals are cutting back in tough economic times.
The Little Canada-based medical technology company said about 50 U.S. hospitals cut back on purchases of heart defibrillators and pacemakers in the quarter ended Oct. 3. The devices, which range from about $8,000 to $35,000, are a cornerstone of the medical technology industry in Minnesota and the biggest source of revenue for the St. Jude.
Quarterly sales of these cardiac rhythm products were $690 million, a 2 percent increase compared with the third quarter of 2008. However, St. Jude's atrial fibrillation and neuromodulation divisions reported sales increases of 16 percent and 31 percent, respectively.
About 15 percent of sales in St. Jude's cardiac rhythm management division, which makes devices to treat irregular heart rhythms, comes from hospitals. In the third quarter, the company noticed a small number of hospitals pulled back on those purchases. (St. Jude sells defibrillators to about 1,600 hospitals in the United States and about twice that number for pacemakers.)
Some hospitals cited budget reasons, Chief Financial Officer John Heinmiller said in an interview. Others asked for a "fairly steep discount. We declined to do that."
During the recession, hospitals have seen reimbursement for procedures drop and more patients who can't pay bills, prompting cuts. In Minnesota, hospitals' net income went from $84 million in the fourth quarter of 2007 to a loss of $276 million in the fourth quarter of 2008, according to the Minnesota Hospital Association.
It's unclear whether the number of heart procedures requiring defibrillators and pacemakers declined in the third quarter. It's also unclear whether the decline in device purchases will continue in the fourth quarter. On Tuesday, Boston Scientific Corp. said in its earnings report that it hasn't seen the same purchasing pullback as St. Jude.
Overall, St. Jude's net income for the quarter decreased $167 million, or 48 cents a share, compared with $189 million, or 53 cents a share, for the same quarter of 2008. Results from this quarter were affected by pre-tax charges of $57 million, or 11 cents a share, for costs associated with employee terminations and streamlining manufacturing. Last year's results were affected by various accounting adjustments.
Excluding charges in the quarter ended Oct. 3, adjusted net earnings were $204 million, or 59 cents a share, a penny shy of Wall Street's expectations.
St. Jude's stock closed Wednesday at $34.11, up 95 cents. When the company warned earlier this month that it would not meet its third-quarter forecast, its stock plunged 13 percent.
Janet Moore • 612-673-7752
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