Thursday, February 17, 2011

Medtronic, Inc. (NYSE: MDT): Q3 Earnings Preview

Medtronic Inc. (NYSE: MDT), the world's largest medical device company, is scheduled to release its fiscal third-quarter financial results before the opening bell on Tuesday, February 22, 2011. Analysts, on average, expect the company to report earnings of 84 cents per share on revenue of $3.97 billion. In the year ago quarter, the company reported earnings of 77 cents per share on revenue of $3.85 billion.

Medtronic, Inc. manufactures and sells device-based medical therapies worldwide. Medtronic’s product lineup includes spinal devices, defibrillators and pacemakers. . It operates in seven segments: Cardiac Rhythm Disease Management, Spinal, CardioVascular, Neuromodulation, Diabetes, Surgical Technologies and Physio-Control.

In the preceding fiscal second quarter, the Minneapolis, Minnesota-based company's net income was $566 million, or 52 cents a share, compared with a profit of $868 million, or 78 cents, in the prior-year period. On an adjusted basis, the company earned 82 cents a share in the latest quarter. Revenue grew 2% to $3.9 billion from $3.84 billion. Analysts, on average, expected the company to report earnings of 81 cents per share on revenue of $3.90 billion.

At its last earnings call in November, the company slashed its fiscal 2011 outlook. The company said that it now expects full-year earnings per share in the range of $3.38 to $3.44, which includes approximately $0.05 of dilution from the acquisition of Invatec and ATS Medical but does not take into account any impact from the pending acquisition of Ardian. Previously, the company expected earnings per share in a range of $3.40 to $3.48 per share. Excluding the approximate $0.05 impact of acquisition dilution and the approximate $0.05 benefit of the extra week in fiscal year 2010, fiscal year 2011 diluted earnings per share growth is expected to be in the range of 8 percent to 10 percent, down from prior growth outlook of 9% to 11%. acquisition-related charges.

The company's once spectacular revenue growth has slowed to a crawl on stagnant sales for its core cardiac defibrillator and pacemaker products, mounting skepticism over its back-surgery devices and industrywide price pressures. Despite these issues, the company is looking at strengthening its product portfolio, expansion in emerging markets and cost control to drive growth. One source of new revenue is the growing middle class in India, China and other emerging markets. Chief Executive Officer William A. Hawkins expects sales from emerging markets to soar from 9% today to 20% in 2015. Hawkins expects Medtronic's performance to improve as it launches new products in 2011 that will help ease price pressure. According to Hawkins, emerging technologies will soon start to have a material impact on sales. The company's recent acquisition of Ardian, a company that makes a device to treat high blood pressure, could be "transformative" in the way the disease is treated. Medtronic is also working diligently to resolve a Food and Drug Administration warning letter that has delayed US approval of Protecta, a shock-reducing implantable defibrillator.

Recently, the company received U.S. Food and Drug Administration approval for the first heart pacemaker that can safely be used during magnetic resonance imaging exams. The company said it will begin shipping the product, called Revo MRI, immediately. Pacemakers are surgically implanted devices that generate electrical impulses to treat stalled heartbeats. About 200,000 pacemaker patients a year do not receive an MRI for a health diagnosis because of the potential for the machine's magnetic fields to interfere with pacemaker operation, according to Medtronic. The Revo pacemaker is among the new products analysts expect will help Medtronic re-accelerate growth in its cardiac rhythm management division.

Among other developments, Medtronic Inc. Chief Executive Officer William A. Hawkins, 56, announced recently that he will retire next April, ending a three-year tenure that analysts said was marked by disappointing sales from the medical-device maker and a declining share price. A new CEO would be expected to re-evaluate the company’s strategy, making an external candidate more likely.

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