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Medtronic profit plunges on charges

Source:ap.org Author:STEVE KARNOWSKI Date:03/25/14 Click:

MINNEAPOLIS - Third-quarter earnings at medical device maker Medtronic Inc. tumbled 89 percent from a year ago due to charges from lawsuit settlements and acquisition costs, but the adjusted profit still beat Wall Street expectations.

Medtronic said Tuesday that it earned $77 million, or 7 cents per share, in the quarter that ended Jan. 25, compared with $710 million, or 61 cents per share, a year earlier.

Revenue rose 12 percent to $3.41 billion from $3.05 billion in the same quarter a year ago, thanks to a sharp rise in international sales, the Fridley-based company said.

Excluding the charges, Medtronic would have earned $713 million, or 63 cents per share. That was 2 cents better than the 61 cent consensus estimate of analysts surveyed by Thompson Financial. The earnings estimates typically exclude one-time items.

Medtronic shares rose 3 cents to $49.15.

Bill Hawkins, Medtronic president and CEO, said the quarterly performance reflected double-digit growth in its neuromodulation, diabetes, spinal and ear-nose-throat businesses and the successful close of its acquisition of spinal implants maker Kyphon.

The charges included $275 million, or 24 cents per share, for settlements of lawsuits stemming from its recalled Marquis line of implantable defibrillators and a stent patent infringement case by Cordis Corp., a subsidiary of Johnson & Johnson.

Hawkins said Medtronic expects to see strong fourth-quarter growth with the launch of its Endeavor drug-coated stents in the United States and the addition of other products.

"Combined with Medtronic's continued strong track record outside the U.S. and our broad and diversified portfolio, we remain optimistic about our long-term growth prospects," Hawkins said in a conference call with analysts.

In an interview after the conference call, Hawkins said he expects Endeavor will be a "very important" product for the company, but declined to put numbers on it.

"It's a $2 billion market here in the U.S. and we had zero position until February the first," he said. "If you look what we've done outside the U.S., we've been able to garner in excess of 20 percent."

Given management's projections for the fourth quarter, along with the third-quarter results that beat Wall Street's estimates, Medtronic "would not be surprised" if analysts raised their expectations for full-year earnings by 2 cents from the current $2.52 estimate, Chief Financial Officer Gary Ellis said in the conference call.

Hawkins also said it had been a "difficult quarter" for Medtronic's core cardiac rhythm disease management business, which had to scramble after it recalled its Sprint Fidelis wires, which connect defibrillators to patients' hearts. The company has said broken Sprint Fidelis wires may have played a role in five patient deaths. Medtronic quickly increased production of its older Sprint Quattro wires to fill the gap.

"This quarter was not exactly the chapter I expected of my new CEO handbook," Hawkins said in an interview with the AP. "These things happen, but at the end of the day I'm very proud of the way our organization has responded to the challenge."

Hawkins declined to comment on lawsuits arising from Sprint Fidelis wires but said Medtronic has responded to the discovery of defects in good faith and will defend any situation that goes forward.

For the first three quarters of the year, Medtronic earned $1.42 billion, or $1.24 a share, on revenue of $9.66 billion, compared with earnings of $1.99 billion, or $1.71 a share, on revenues of $9.02 billion a year earlier.

Medtronic products include pacemakers, coronary stents, implantable defibrillators and glucose monitoring devices.

___

On the Net:

Medtronic Inc.: http://www.medtronic.com

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