Medtronic reports higher second-quarter earnings

Shares of Medtronic Inc. surged Tuesday after the medical technology company reported a 12 percent increase in adjusted earnings for the fiscal second quarter -- results that beat Wall Street expectations.

The company's stock closed at $43.25, up $2.94 or 7.3 percent, making it one of Wall Street's big movers on Tuesday.

The Fridley-based company, the world's largest medical device firm, reported solid gains from all product divisions, ranging from pacemakers to brain stimulators to insulin pumps.

Unadjusted net earnings for the quarter ended Oct. 30 were $868 million, or 78 cents per share, a surge of 59 percent compared with $547 million, or 49 cents per share, in the same quarter last year. After adjusting for a litigation gain and accounting changes, net income was $850 million, or 77 cents a share.

Second-quarter sales rose 7.5 percent to $3.8 billion.

Analysts expected Medtronic to earn 74 cents a share in the quarter on revenue of $3.7 billion.

The company also raised its fiscal 2010 earnings guidance to a range of $3.17 to $3.22 a share, from previous guidance of $3.10 to $3.20. Analysts expect fiscal 2010 earnings of $3.15 a share.

Sales of Medtronic's core products -- heart defibrillators and pacemakers -- increased 3 percent to $1.2 billion. Of that amount, sales of heart-shocking implantable cardioverter defibrillators (ICDs) were $754 million, an increase of 4 percent.

Sales in the company's CardioVascular business, which includes heart stents, grew 17 percent to $696 million; spinal device revenue increased 4 percent to $862 million; physio-control external defibrillator sales grew 25 percent to $94 million; neurmodulation sales grew 12 percent to $384 million; sales of diabetes devices grew 10 percent to $300 million; and sales in the Surgical Technologies business grew 5 percent to $224 million.

Morgan Stanley analyst David Lewis said three of seven operating lines beat his expectations, but that sales of cardiac rhythm and spine products missed. Still, Lewis wrote in a note to investors Tuesday, "another solid top and bottom-line performance will work to reassure investors that expectations at Medtronic have been more appropriately set."

Yet Medtronic still faces some challenges in coming months.

Last week, the company revealed it had received a warning letter from the Food and Drug Administration citing problems at its Mounds View operations, including procedures for preventing and identifying problems with devices, documenting problems, and the speed with which it informs the FDA of concerns. The agency also cited problems with Medtronic's quality control for suppliers.

Further, legislation in both houses of Congress dealing with health care reform would tax the medical device industry approximately $20 billion over the next 10 years to cover part of the cost of expanding insurance coverage to more Americans. Even though the Senate version of the tax has been cut in half, Hawkins says companies like Medtronic will be taxed twice, because cash-strapped hospitals will seek to cut costs by pushing for discounts from devicemakers. "It's a double-tax for us," he said.

In addition, there's no telling when the economy will improve. "We have concerns that the economy will continue to struggle in the foreseeable future," Hawkins said. "I don't see it getting a lot better right now or a lot worse."