Medtronic's earnings healthier than expected

Medical technology giant Medtronic Inc. said Tuesday that quarterly earnings beat analysts' estimates, driven by sales of a new heart stent and reductions in jobs and expenses.

Net income for the fiscal first quarter ended July 25 rose 11 percent to $747 million, or 66 cents a share, the Fridley-based company said. Earnings excluding some items beat analysts' estimates by 3 cents.

Revenue increased 19 percent to $3.71 billion, led by increases of 30 percent or more in the device maker's spinal and stent divisions.

Medtronic expanded its spine business with the $3.8 billion purchase of Kyphon Inc. last year and won U.S. approval in February for its drug-coated stent, which Chief Executive Officer William Hawkins said captured 19 percent of the U.S. stent market during the quarter.

"The company is starting to show it can grow at a reasonable rate," said Jan David Wald, a Stanford Group Co. analyst. "Investors may wait a little longer to get excited about the story, but it does show something good is happening."

Medtronic slashed 1,100 jobs in May, 2.8 percent of the workforce, to cope with slowing growth for pacemakers and heart defibrillators, which generate 37 percent of the company's sales. (About 350 jobs were cut from the company's Twin Cities operations.) Results from the device maker's cost-cutting were "impressive," said Rick Wise, a Leerink Swann & Co. analyst.

Both analysts and Medtronic executives said they expected faster growth from the spinal business. Hawkins blamed "softness" in demand for a Kyphon device that treats a narrowing of the spinal column. The company is revamping its marketing of the product, Hawkins said.

Hawkins said the company's core product portfolio has been hurt by the proliferation of small, privately held competitors. "It's a growing competitive dynamic," he said.

The cardiovascular unit, which recorded $80 million in sales from the Endeavor drug-coated stent during the quarter, jumped 30 percent to $631 million. Since regulators approved Endeavor, U.S. stent sales almost tripled in the quarter, rising 173 percent. But it also faces new competition from drug-coated stents made by Abbott Laboratories and Boston Scientific Corp. Stents are tiny metal struts that prop open clogged arteries. When stents are coated with drugs, the vessels are less likely to reclog.

Hawkins noted that Endeavor has taken on a full slate of competitors in foreign markets for more than a year. "We've been able to maintain our 20 percent market share in the face of a full landscape of competitors. That translates a bit to what we're going to see here in the U.S."

Medtronic's stock closed Tuesday at $54.48, up $1.04.