Medtronic (MDT) exceeded analysts’ expectations with profits of $871 million, or 82 cents per diluted share, in the second quarter of fiscal year 2012, up 54 percent from the same period last year.
Buyers responded to the earnings, which CEO Omar Ishrak said “reflect a quarter of stability in a challenging market,” and shares were up more than 3 percent this morning.
Worldwide revenue for Medtronic increased 3 percent to $4.13 billion from the second quarter of 2011. Sales of heart valves, stents and diabetes products offset weaker performances by implantable cardiac defibrillators and the soon-to-be-divested Physio-Control.
Analysts had called for a profit of 82 cents a share on $4.07 billion revenue. They have been primarily concerned about Medtronic’s Cardiac Rhythm Disease Management (CRDM) unit and spinal products due to separate controversies regarding use and safety of products.
Under the company’s cardiac and vascular umbrella, CDRM saw declining revenue of 8 percent on a constant currency basis, which Ishrak and CFO Gary Ellis attributed to declining procedure volumes as the U.S. Department of Justice investigates whether doctors have been implanting too many cardiac defibrillators. But Ellis said the company was “cautiously optimistic” that ICD sales had bottomed out and were beginning to flatten.
Cardiovascular sales overall grew 8 percent and are expected to continue growing as the company anticipates a late fiscal year 2012 approval of its Resolute drug-eluding stent in the U.S.
In the restorative therapies group, Spinal revenue was down 3 percent as a result of market challenges around the controversy with Infuse, which saw sales drop 16 percent. Ishrak said he expects continued overall growth in restorative therapies driven by strong international sales of diabetes devices, surgical technologies and neuromodulation devices, and the expected launch of the AdaptiveStim technology in the U.S. and Japan in the third quarter.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
Analysts expected that Medtronic might have scaled back its full-year revenue guidance, but the company still expects earnings of between $3.43 and $3.50 per share. For the second half of the year, it expects revenue growth to remain in the range of 1 percent to 3 percent on a constant currency basis. For fiscal year 2012, the company continues to expect diluted earnings per share in the range of $3.43 to $3.50, a growth of 6 percent to 9 percent.
Analysts seem anywhere from indifferent to negative about the company’s results for next quarter, estimating a fiscal year 2012 growth of 3.44 per share, down from 3.46 estimated 90 days ago.
At the earnings call, Ishrak once again emphasized his goal of growing the business globally, noting for example that sales in China grew 24 percent this quarter.
He also said this was the company’s final year of a $1 billion cost-reduction plan, and that he would be challenging the company to take out another 25 percent of costs over the next five years.
