Medical device maker Medtronic Inc. (MDT) announced Tuesday morning that profit for the second quarter declined 14% from last year, hurt primarily by charges related to a patent dispute with Johnson & Johnson (JNJ) and inventory write-offs. Excluding items, earnings per share for the latest quarter rose 16%, but missed analysts' consensus estimate by four cents, while quarterly revenues increased 14% and also missed expectations. Separately, Medtronic also announced a cut in its earnings and revenue guidance for fiscal 2009.
In a statement, chairman and chief executive officer, Bill Hawkins said, "Our results in challenging economic times reflect the benefit of a globally diversified product portfolio."
Second Quarter Results
The Minneapolis, Minnesota-based company's posted net income of $571 million or $0.51 per share for the second quarter, lower than $666 million or $0.58 per share in the prior-year quarter. Net income declined 14%, while earnings per share were down 12%.
Results for the latest quarter include charges of $176 million or $0.15 per share, related to legal disputes and $11 million or $0.01 per share, related to a write-off of inventory and in-process research and development. Litigation charges included $152 million in litigation fees paid to Johnson & Johnson to settle stent patent litigation.
Excluding the one-time charges, non-GAAP net earnings for the latest quarter was $758 million or $0.67 per share. On average, twenty-three analysts polled by First Call/Thomson Financial expected the company to report earnings of $0.71 per share for the second quarter. Analysts' estimates typically exclude special items.
Earnings were also impacted by a $0.03 per share charge related to the write-off of inventory made obsolete by the recent launch of angioplasty products on a rapid exchange delivery system in the United States.
Boosted by a strong showing overseas, net sales for the quarter increased 14% to $3.57 billion from $3.12 billion in the same quarter last year, and missed twenty-one Wall Street analysts' consensus estimate of $3.69 billion. The company noted that currency translation had a positive impact of $65 million on quarterly revenues in the second quarter.
Outlook
Separately, Medtronic announced a cut in its earnings and revenue guidance for fiscal 2009.
The company has now factored in a $0.03 per share charge associated with the write off of inventory made obsolete by the recent launch of angioplasty products on a rapid exchange delivery system in the U. S. and an expected $0.01 per share dilutive impact from the recently closed CryoCath Technologies acquisition.
The company currently anticipates full-year 2009 earnings in a range of $2.90 to $2.98 per share, down from the prior guidance of $2.94 to $3.02 per share.
Based on the year-to-date results and an anticipated $300 to $400 million negative impact from currency translation, Medtronic also lowered its revenue forecast for fiscal 2009 to a range of $14.6 billion to $15.0 billion from the previous forecast between $15.0 billion and $15.5 billion.
The company added that it was comfortable with the midpoint of both the earnings and revenue range. Analysts expect the company to report earnings of $2.99 per share on revenues of $15.17 billion for fiscal 2009.
Peer Performance
Among Medtronic's peer's, St. Paul, Minnesota-based St. Jude Medical Inc. (STJ) last month reported that third quarter profit rose from last year, driven by higher margins and a 17% revenue growth, helped double digit growth across all segments. Earning per share for the quarter came in line with consensus, while quarterly revenues beat analysts' estimate marginally. St. Jude also provided earnings outlook for the third quarter, which was in line with Street expectations, and tightened its earnings forecast for fiscal 2008.
Another peer, Natick, Massachusetts-based Boston Scientific Corp. (BSX) reported last month that loss for the third quarter narrowed from last year, despite lower sales, as the company's results were hurt by lesser amount of charges compared to a year ago.
Q2 Segmental Synopsis
International revenues for the second quarter, representing 38% of revenues, rose 18% to $1.37 billion from the year-ago quarter, including a $65 million positive benefit of currency translation.
Revenue growth was led by the company's spinal and biologics unit, where the top line rose 26% to total $829 million, led by its Kyphon product. Revenues for the segment only grew 3%, excluding the product.
CardioVascular revenue also showed a notable rise from last year, climbing 22% to $596 million, boosted by strong performances in both the Endovascular product lines and the Coronary and Peripheral product lines, which grew 36% and 29% respectively.
Revenue from its cardiac rhythm disease management unit, by far its biggest business line, increased 8% to $1.24 billion. Implantable cardioverter defibrillators revenue grew 13% and pacing products revenue edged up 2%.
Surgical technology saw 15% revenue growth to $213 million, while the top-line for its diabetes products increased 11% to $272 million. A modest growth came from the neuromodulation segment, which saw 7% increase to $343 million. Physio-Control reported $75 million in revenue, based on the sale of external defibrillators and accessories.
Other Metrics
Operating income for the second quarter was $814 million, 7% lower than $879 in the year-ago quarter, while non-GAAP operating income rose 25% to $1.10 billion from the prior-year quarter's $0.88 billion.
Total costs and expenses for the quarter rose to $2.91 billion for the quarter, compared to last year's level of $2.26 billion.
Expenses included, research and development expense of $326 million, up from $298 million in the year-ago quarter and selling, general and administrative expense of $1.26 billion, higher than $1.11 billion in the prior-year quarter.
The company ended the second quarter with cash and cash equivalents of $0.54 billion, compared to $4.68 billion at end of the prior-year quarter.
Half-Yearly Highlights
For the first six-months, Medtronic reported net earnings of $1.32 billion or $1.17 per share, compared to $1.34 billion or $1.17 per share in the prior-year period.
Excluding one-time charges in both the periods, non-GAAP net earnings increased to $1.57 billion or $1.39 per share from $1.38 billion or $1.20 per share in the year-ago period.
Net sales for the half-yearly period increased to $7.28 billion from $6.25 billion in the same period last year.
Stock Quote
In Tuesday's regular trading, MDT is currently trading at new 52-week low of $32.51 down $3.91 or 10.74% on a volume of 6.38 million shares. The stock has been trading in a range of $34.61 to $56.97 in the past 52 weeks.
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