Medical equipment maker Medtronic, Inc. (MDT) reported Tuesday a rise in second-quarter profit, as net sales increased 8% helped by growth in revenues in all of the company's segments. Earnings as well as revenues exceeded Street expectations. Looking ahead, the company raised its full year earnings per share guidance and also reaffirmed its 5% to 8% constant currency revenue growth outlook for the foreseeable future.
The Minneapolis, Minnesota-based company's net earnings for the quarter increased to $868 million or $0.78 per share from $547 million or $0.48 per share in the same period previous year.
Adjusting for a litigation gain and the impact of adopting a new accounting standard for non-cash interest expense on convertible debt effective the beginning of fiscal year 2010, non-GAAP net earnings were $850 million or $0.77 per share, compared to net earnings of $758 million or $0.67 per share in the same quarter last year. On average, 28 analysts polled by Thomson Reuters expected the company to report earnings of $0.74 per share for the quarter. Analysts' estimates typically exclude special items. In August, the company reported a 38% decline in its first-quarter profit for fiscal year 2010, hurt by charges related to restructuring and litigation. The company's first-quarter net earnings dropped to $445 million or $0.40 per share from $723 million or $0.64 per share reported in the same period last year. Net sales grew 6% to $3.93 billion from $3.71 billion in the prior-year quarter.
Net sales for the quarter increased 8% to $3.84 billion from $3.57 billion in the prior year. Twenty six analysts had a consensus revenue estimate of $3.75 billion for the quarter.
International revenues grew 12% to $1.54 billion from $1.37 billion in the same period last year, or increased 13% on a constant currency basis, accounting for 40% of Medtronic's worldwide revenue. Revenues from the U.S increased to $2.3 billion from $2.2 billion in the prior year quarter.
Segment-wise, Cardiac Rhythm Disease Management or CRDM world wide revenues grew 3% as reported and on a constant currency basis to $1.28 billion from $1.24 billion in the previous year. Outside the U.S, CRDM revenue grew 4% on a constant currency basis. Spinal revenues increased 4% to $862 million from $829 million in the same quarter last year. Outside the U.S, Spinal revenues grew 10% on a constant currency basis driven by solid growth in China, Middle East/Africa, Canada and Latin America, the company said. CardioVascular revenues were $696 million, up 17% as reported and 18% on a constant currency basis, from $596 million in the year earlier, after adjusting for an unfavorable $5 million foreign exchange impact. Neuromodulation revenues increased to $384 million from $343 million in the previous year. Diabetes revenue rose to $300 million from $272 million a year ago. Revenues from Surgical Technologies segment grew 5% to $224 million from $213 million last year. Physio-Control revenues were $94 million, up from $75 million in the preceding year. Total costs and expenses for the quarter decreased to $2.73 billion from $2.95 billion in the earlier year.
For the six-month period, the company's net earnings grew to $1.31 billion or $1.18 per share from $1.27 billion or $1.12 per share in the same period last year. Non-GAAP net earnings were $1.73 billion or $1.56 per share, compared to earnings of $1.57 billion or $1.39 per share in the previous year.
Net sales for the period increased to $7.77 billion from $7.28 billion in the preceding year.
Bill Hawkins, chairman and chief executive officer said, "Our solid financial performance this quarter was driven by consistent execution across our diversified portfolio of businesses. We are well-positioned to deliver on our commitments for the balance of our fiscal year and to launch innovative new products to drive further growth in the coming years." Looking ahead to fiscal 2010, the company raised its earnings per share guidance to a range of $3.17 - $3.22, from the previous range of $3.10 to $3.20. The company also reaffirmed its 5% to 8% constant currency revenue growth outlook for the foreseeable future and said it believes that the growth rate remains reasonable for the second half of fiscal 2010. Analysts currently expect the company to report earnings of $3.15 per share on revenues of $15.56 billion for fiscal 2010. Early this month, Credit Suisse upgraded shares of Medtronic to "Outperform" from "Neutral" and increased its price target to $49 from $41. The brokerage noted that Medtronic's base businesses, particularly cardiac rhythm management and spine, are showing signs of stability and this should continue. Medtronic is delivering on its cost savings and operating margin leverage opportunities, the firm added.
Credit Suisse said that over the next year and beyond, Medtronic would launch a series of new products, most notably within the cardiac rhythm management and diabetes areas, which should accelerate underlying sales growth. Last week, the company announced that it received a warning letter from the FDA regarding the inspection of its Cardiac Rhythm Disease Management facility in Mounds View, Minnesota that was completed in August. The promised corrective actions of the company have been found to be adequate to address the concerns raised in the letter, according to the FDA, and will be confirmed upon reinspection. Medtronic said it is working with FDA to resolve all remaining issues as quickly as possible and would respond to the letter within 15 days.
Among others in the industry, Boston Scientific Corp. (BSX) in October reported a profit for the third quarter, helped by higher sales mainly from the Cardiac Rhythm Management segment. The company posted net income of $200 million or $0.13 per share for the third quarter of 2009, compared to a net loss of $62 million or $0.04 per share in the prior year quarter. Third-quarter net sales increased 2% to $2.025 billion from $1.978 billion in the third quarter of 2008.
Another rival, St. Jude Medical Inc. (STJ) last month reported a decline in third-quarter profit, hurt by one-time charges mainly associated with employee termination. Third-quarter net earnings slipped to $166.94 million or $0.48 per share from $184.70 million or $0.53 per share in the same quarter last year. Net sales for the quarter rose 7% to $1.16 billion from $1.08 billion reported a year ago.
MDT is currently trading at $43.16, up $2.85 or 7.07%, on a volume of 2.3 million shares. IN the past 52 weeks, the shares have been trading in a range of $24.06- $43.18 on the NYSE.
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