UPDATE: St. Jude Sees In-Line 4Q EPS, But Pressures Ahead

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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