Medtronic surpasses Wall Street estimates

Continued growth in worldwide revenue helped Medtronic Inc. beat analysts' expectations for its fiscal second quarter despite shrinking sales of defibrillators and spinal products.

The Fridley-based company said Tuesday that net income jumped more than 50 percent in the quarter -- when compared with the same period last year, which was weighed down by a large legal settlement.

CEO Omar Ishrak said the fiscal second quarter was a "quarter of stability in a market that still faces many challenges. We still have a lot of work ahead of us, but I am encouraged by the progress we made this past quarter." Ishrak took over the top spot at Medtronic in June.

Earnings for the quarter ended Oct. 2 were $871 million, or 82 cents a share, compared with $566 million, or 52 cents a share, a year earlier. Results from a year ago were affected by a $278 million legal settlement related to a recalled defibrillator lead.

Excluding one-time items, the company would have earned $898 million, or 84 cents per share. Wall Street was expecting earnings per share of 82 cents a share.

Sales were up 6 percent to $4.1 billion.

"To beat expectations, even a little bit, is a step in the right direction," said Thomas Gunderson, an analyst with Piper Jaffray & Co.

Overall, expectations for the quarter were low based on previous earnings and continued challenges facing the industry, said Tim Nelson of Nuveen Asset Management. He said 60 percent of Medtronic's businesses "are high-margin but not growing."

That means the rest of the company's businesses have to grow at high rates, Nelson said, which puts a lot of pressure on Medtronic's foreign markets to fuel success.

"It's higher potential, higher risk," Nelson said. "It's kind of what [Ishrak] was hired to do."

International revenue was more than $1.83 billion for the quarter, up more than $200 million from a year earlier. In all, international revenue grew 14 percent and emerging market revenue grew 21 percent.

Collins Stewart analyst Tao Levy said in a note to investors that "weakness in the quarter was expected and was driven by continued challenges in the two largest franchises [cardiac rhythm products] and spine. The [heart defibrillator] market continues to be challenged."

Another key product, biologics used in spine surgery, declined 4 percent to $208 million. This category includes sales of Infuse, a controversial bone-growth product used to repair the spine, which have declined following the publication of a series of articles in a medical journal questioning its safety and effectiveness.

Revenue from sales of pacemakers increased 4 percent to $511 million, boosted by the introduction of the Revo pacemaker, which permits MRI scans in certain patients.