Medtronic CEO Omar Ishrak

Jeff Wheeler, Star Tribune

Medtronic sees stability in key areas as sales climb

  • Article by: JAMES WALSH
  • Star Tribune
  • August 21, 2012 - 10:31 PM

Medtronic Inc. delivered a solid first quarter Tuesday with adjusted sales and earnings both up 5 percent and welcome signs of stability in its cardiac and vascular group, which includes implantable cardiac devices.

"Every quarter has its own dynamic and our goal was precisely that, to have no shocks or surprises," Medtronic CEO Omar Ishrak said, describing results that he had characterized to analysts as "a positive step towards our goal of consistent and dependable growth."

While Medtronic's cardiac rhythm disease management division reported revenue of $1.193 billion -- down 2 percent on a constant currency basis and 5 percent on an as-reported basis -- officials said the company's larger cardiac and vascular group showed worldwide sales growth of 4 percent.

Overall, Medtronic reported $4 billion in revenue for the quarter, up 5 percent after adjusting for a $119 million negative foreign currency impact. Revenue grew 2 percent on an as-reported basis.

The company's first-quarter earnings were $864 million, or 83 cents per share, an increase of 5 percent and 8 percent, respectively, from the same quarter last year.

In all, Medtronic enjoyed a first quarter that was mostly in line with analysts' expectations, said Lei Huang of Wells Fargo and Danielle Antalffy of Leerink Swann Research.

The company confirmed full-year guidance for fiscal year 2013 with per-share earnings expected within a range of $3.62 to $3.70 -- growth of 5 to 7 percent.

Medtronic, whose international sales now account for 44 percent of the company's worldwide revenue, reported that international revenue increased 6 percent, to $1.781 billion. That includes revenue from emerging markets, which increased 14 percent to $438 million.

Medtronic's restorative therapies group had international sales of $616 million, up 7 percent on a constant currency basis or 1 percent as reported. Restorative therapies include spine, neuromodulation, diabetes and surgical technologies businesses.

"We delivered another quarter of improving revenue growth in a dynamic health care environment," Ishrak said. "Once again, our growth was broad-based across businesses and geographies and reflects the positive impact of well-executed product launches and stabilizing end markets."

Gary Ellis, senior vice president and chief financial officer, said that while Medtronic had some challenges in spine and implantable cardiac defibrillator sales, "we are starting to see the turnaround. Our growth is better than the market and what some competitors have done."

Medtronic shares closed Tuesday at $41.14, down 31 cents, or less than 1 percent.

Separately Tuesday, U.S. regulators in a letter requested a meeting to discuss a corrosion problem with implanted pumps made by Medtronic that deliver painkillers and drugs. The U.S. Food and Drug Administration letter stems from an inspection at Medtronic's neuromodulation unit that concluded May 9 and found corrosion in the SynchroMed II pump that can cause the motor to stall or seize.

While the failure was identified in October 2007, Medtronic, the world's biggest maker of heart-rhythm devices, doesn't have a plan to prevent recurrences, the agency said. There have been 567 complaints of corrosion, according to the FDA.

"There is no one else in the market with this product, and it has considerable benefit to patients," Ishrak told Bloomberg News. "The FDA is interested in understanding the details and what our plans are, and the opportunity to present this information to them is a good one."

The plan that Medtronic proposed to monitor and evaluate complaints with its products in the future is adequate, the agency said in the July 17 letter.

The regulator requested an independent outside review to confirm the company is handling reports of device malfunction properly after its earlier efforts failed to document withdrawal symptoms, increasing pain levels and other problems with the devices, the agency said.

Last year, Medtronic recalled the SynchroMed II and warned doctors the pump batteries may fail. A failure can lead to sudden loss of therapy, the return of symptoms or drug withdrawal, which in some cases can be fatal, the company said.

The company has since received approval for a new battery, and the device continues to be sold.

Bloomberg News contributed to this report. James Walsh • 612-673-7428

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