Medtronic Inc. (NYSE:MDT) debuted its reorganized business units to Wall Street Monday. Too bad the company didn’t have better news to share .
The company, based in Fridley, Minnesota, said adjusted first-quarter sales rose just 2 percent to $3.7 billion, excluding the extra selling week in the same quarter last year and an unfavorable foreign currency impact of $21 million. Adjusted (non-GAAP) profits increased 5 percent to $868 million.
Because of the quarter’s results, the company lowered its 2011 profit forecast to $3.4o to $3.48 a share from an earlier estimate of $3.45-to-$3.55. Medtronic shares were down $3.29, or more than 9 percent, to $31.71 in late-morning trading on the New York Stock Exchange.
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Medtronic’s earnings are bad news for the medical device industry and may indicate the global economy is in worse shape than people think. The company’s growth comes primarily from overseas, which now accounts for 41 percent of total sales. Just a few months ago, the company said it expected 2011 sales to grow between 5 and 8 percent. Now, Medtronic says they likely will increase between 2 and 5 percent.
Hard to believe that a company that generated an 8 percent sales jump last year is perilously close to going flat in 2011. CEO Bill Hawkins blamed falling prices and less use of medical devices around the world.
“A softer global healthcare market impacted by decreased utilization and increased pricing pressure made for a difficult first quarter,” Hawkins said in a statement. “Despite a difficult quarter, the fundamentals of our business remain strong, and we are confident that our diversified portfolio positions us well to deliver market-leading performance in the long run.”
The company said pacemaker and implantable cardioverter defibrillator (ICD) sales, now part of the reorganized Cardiac and Vascular Group, grew just 3 percent to $1.226 billion. Medtronic’s spine and Physio-Control units struggled.
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On the plus side, Medtronic said vascular, diabetes, and surgical technologies performed well. Diabetes revenue jumped 12 percent to $312 million, thanks to strong sales of its continuous glucose monitoring pumps. Revenue from cardiovascular products, including peripheral stents and heart valves, increased 10 percent to $717 million.
Medtronic is the world’s largest medical device company and a bellwether stock for the industry. So Medtronic reporting weak demand for pacemakers and ICDs bodes ill for other medical device companies.
It will be interesting to see how St. Jude Medical Inc. (NYSE:STJ) in Little Canada, Minnesota, performs in its third and fourth quarters. The company’s ICD sales have been impressive of late, thanks to new product introductions.
St. Jude said ICDs sales jumped an eye-popping 18 percent in the second quarter, following a 15 percent leap in the first quarter. The company is generating ICDs growth that’s about three-to-six times the market rate. The company expects to report third-quarter earnings on Wednesday, October 20.
CEO Dan Starks said St. Jude’s new Unify and Fortify ICDs, equipped with smaller circuit designs and more advanced battery technologies, made up more than 50 percent of total ICDs sales in the United States in June, an “unprecedented” feat and a good leading indicator for the remainder of the year, he said.
If St. Jude continues to perform well, that tells me one of two things: either Medtronic’s problems are an isolated issue, or St. Jude is simply kicking butt with better technologies.
In the meantime, Medtronic’s woes dragged down St. Jude’s stock. The shares were down $1.13 to $35.56 in late morning trading.
