St. Jude stock price slips as caution is perceived in second-quarter report

On Wednesday, St. Jude Medical Inc. offered some positive news.

Second-quarter 2012 earnings were up. And officials said it has gained market share in the U.S. implantable cardioverter defibrillator market.

So why did the shares fall 4 percent for the Little Canada-based medical technology company by midday?

"Wall Street looks not only at how you did in the second quarter, but your tone," said Thom Gunderson, a senior analyst with Piper Jaffray & Co. "St. Jude's tone seems a little more cautionary."

At the heart of that perceived caution may have been St. Jude's reported cardiac rhythm management (CRM) sales, which include defibrillators and pacemakers. CRM sales fell 6 percent compared to the second quarter of 2011. It's a hefty segment of St. Jude's business, with $746 million in sales making up more than half St. Jude's total reported net sales for the quarter.

The point is, Gunderson said, many analysts assumed that a years-long decline in cardiac rhythm sales had bottomed out. St. Jude's report may show that is not yet the case.

"They don't know," Gunderson said of the sales numbers. "There are a lot of different factors that are impacting the overall decline of procedures and hospital utilization. In the past, we didn't talk about unemployment relative to med tech companies. Now we do. There is enough unemployment -- and high deductible insurance -- that the cost of all of this in a tough economy has an impact."

John Heinmiller, executive vice president and chief operating officer, said St. Jude had gained market share in U.S. defibrillator sales. And, he said, strong sales of St. Jude's new Quadripolar pacing system offset any negative sales impact that might have been triggered by the recalled Riata leads.

"There was a lot of intense focus on this topic," Heinmiller said. "So that is a positive coming out of the quarter."

In an interview Wednesday morning, Heinmiller said that company officials are hopeful that years of CRM declines will bottom out sometime in early 2013. "But we are trying to be cautious until we see some evidence of that," he said.

For St. Jude, even if those sales are flat, it could mean significant growth, Heinmiller said. Because of the company's strength in other areas -- and a growing share of the "replacement market" for cardiac devices -- Heinmiller said St. Jude could see high single-digit or low double-digit overall growth in 2013.

"We have a lot of confidence in that," he said. "That's our strategy."

The company said it expects its adjusted net earnings for the third quarter of 2012 to be in the range of 80 to 82 cents per share and for full-year 2012 adjusted net earnings to now be in the range of $3.40 to $3.45.

Gunderson agreed that St. Jude's new product cycle "appears to be gaining market share." But, repeating the cautious theme yet again, he said, "the final tally is probably four or five weeks from now."

James Walsh • 612-673-7428

Revenue$2,805.0$2,822.8-0.6Income456.0473.9-3.8Earn/share1.441.43+0.7 Figures in millions except for earnings per share.