February 23, 2010 / 2:30 PM / in 8 years

UPDATE 3-Medtronic beats, but spine device sales disappoint

 * Q3 EPS ex-items 77 cents/shr vs 76 cents Wall St view
 * Q3 revenue $3.85 billion is shy of $3.87 bln estimate
 * Boosts low end of its fiscal 2010 outlook
 * Shares down 1.5 percent on NYSE
 (Recasts; Adds earnings details, analyst comment, byline)
 By Susan Kelly
 CHICAGO, Feb 23 (Reuters) - Medtronic Inc MDT.N on
Tuesday posted a 19 percent rise in quarterly profit on lower
operating expenses, but soft sales of its spinal products and
pacemakers disappointed investors, and its shares slumped.
 Overall revenue rose 6 percent, after adjusting for a
foreign currency benefit, within the company's forecast range
but not as strong as some had hoped, based on its recent string
of strong quarters, analysts said.
 "On the revenue line, there is very little to be excited
about," Tim Nelson, a healthcare analyst with First American
Funds said, noting Medtronic had forecast revenue growth of 5
percent to 8 percent.
 Revenue, including a boost from positive foreign currency
translations in the quarter, rose 10 percent, as growth in
implantable heart defibrillators, stents, blood glucose
monitors and neuromodulation devices helped offset the weakness
in spine and pacemakers.
 "Spine continues to be impacted by competition, and the
numbers came in a little light there. In general, it looks like
the other segments made up for that," Edward Jones analyst
Aaron Vaughn said.
 Medtronic reported net earnings in the fiscal third-quarter
that ended Jan. 29, of $831 million, or 75 cents a share, up
from $698 million, or 62 cents a share, a year ago.
 Excluding special items, the Minneapolis-based company
earned 77 cents a share, topping the average analyst estimate
by a penny, according to Thomson Reuters I/B/E/S.
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 For a graphic, click link.reuters.com/pux42j
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 Medtronic has restructured operations and reallocated
resources into higher-growth businesses as the economic
downturn led to rising unemployment, a slowdown in medical
procedures and pressure on pricing.
 "Q3 was another step in building our track record of
consistent performance," Medtronic Chief Executive Bill Hawkins
told analysts on a conference call.
 Third-quarter revenue rose 10 percent to $3.85 billion, shy
of the analysts' average forecast of $3.87 billion. Revenue
rose 6 percent when adjusted for a favorable $144 million
foreign exchange impact.
 Hawkins said he was pleased with a growth rate he said was
at the very high end of what was seen across the medical
technology industry in the past quarter, but acknowledged the
company was still working to address issues in its spine
division. Medtronic has also struggled to integrate the Kyphon
spine products business it acquired more than two years ago.
 "We've been telling people for some time that we have our
spine business in the repair shop," Hawkins said in an
interview. "We've taken a step back and are refreshing the
product pipeline."
 In the company's business segments, revenue rose 6 percent
to $1.24 billion in cardiac rhythm disease management, which
includes both pacemakers and implantable cardioverter
defibrillators, or ICDs, and is the company's largest division.
ICD revenue rose 9 percent, while pacemaker sales were flat.
 Spine division revenue grew 1 percent to $842 million,
while revenue from stents and other cardiovascular devices rose
28 percent to $722 million; neuromodulation devices rose 11
percent to $394 million; and diabetes products increased 12
percent to $311 million.
 Medtronic raised the low end of its fiscal 2010 per-share
earnings forecast and expects profit to be in a range of $3.20
to $3.22, up from its previous outlook of $3.17 to $3.22. It
still expects sales growth of 5 percent to 8 percent on a
constant-currency basis in the fourth quarter.
 Medtronic shares fell 66 cents, or about 1.5 percent, to
$43.00 in late-morning trading on the New York Stock Exchange,
off an earlier low of $42.57.
 (Reporting by Susan Kelly; Editing by Dave Zimmerman and
Maureen Bavdek)


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