UPDATE: St. Jude Sees In-Line 4Q EPS, But Pressures Ahead
January 11 2010 - 4:33PM
Dow Jones News
St. Jude Medical Inc. (STJ) said Monday that fourth-quarter
earnings should land within a previously projected range, but that
factors like a tax on device makers have caused it to shift away
from a growth target it had maintained for 2010.
The company is revisiting its target of increasing per-share
earnings by 15% a year, Chairman and Chief Executive Daniel Starks
said Monday. Instead, St. Jude is now targeting double-digit EPS
growth in 2010 and will issue official guidance for the year during
its upcoming quarterly earnings call.
In October, Starks has said St. Jude was targeting 15% EPS
growth in 2010 and beyond, excluding the impact of foreign
currency. He cautioned Monday that neither the 15% nor double-digit
targets represent guidance.
The medical-device maker's shares ticked up after the
preliminary fourth-quarter announcement, but slid following Starks'
discussion of pressure on the earnings outlook. Shares closed
Monday down 3.1% to $38.15.
The pending $2 billion-per-year tax on medical device makers
that is part of health-overhaul legislation, an expected increase
in pressure on device prices and higher costs to comply with
evolving regulatory rules all threaten St. Jude's historic growth
rate, Starks said.
"We expect consequences from all of these kinds of dynamics," he
said during a J.P. Morgan health-care conference.
The company's goals also include sustained double-digit sales
growth.
Medical-devices companies no longer have fast-growing top
markets, yet face the potential for higher costs due to growing
regulatory scrutiny. A U.S. Food and Drug Administration review of
a fast-track approval process that has been criticized for
leniency, for example, could potentially yield more stringent rules
that raise the cost of doing business.
Regarding the devices tax, the U.S. Senate version of the bill
would start affecting companies in 2011, two years ahead of the
House of Representatives' version. Both St. Jude and Medtronic Inc.
(MDT), which is a big player in several device markets, anticipate
the 2011 start time.
For the fourth quarter, St. Paul, Minn.-based St. Jude said it
expects to report sales of $1.2 billion, which is ahead of the
$1.19 billion forecast, on average, among analysts surveyed by
Thomson Reuters.
The company also said it's comfortable with its guidance, issued
in October, for adjusted fourth-quarter earnings of 61 cents to 63
a share. Analysts are targeting 62 cents.
The maker of pacemakers, defibrillators and other medical
devices had a rough third quarter that it blamed, in part, on U.S.
hospitals refraining from buying heart-rhythm devices or pushing
for price cuts St. Jude wouldn't accept.
These issues were explained in October and raised questions
about potential systemic problems affecting the $11 billion market
for heart-rhythm devices. But Medtronic said in November when it
reported quarterly results that it wasn't seeing the same
issues.
For the fourth quarter, St. Jude sees sales in its major product
areas largely ahead of forecasts it made in October. For the
heart-rhythm devices business, which includes pacemakers and
defibrillators, sales were about $698 million, which is just above
the guidance range midpoint, St. Jude said.
Defibrillator sales were about $395 million.
In the market for products that address the rhythm issue atrial
fibrillation, estimated sales of $171 million are ahead of the
guidance range. Cardiovascular sales are estimated at $240 million,
near the upper end of guidance, while neuromodulation sales are
estimated to top guidance by reaching about $94 million.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728;
jon.kamp@dowjones.com
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