UPDATE: St. Jude Posts 4Q Profit, Aims For US Improvements

St. Jude Medical Inc. (STJ) posted a fourth-quarter profit following a loss a year earlier and set a 2010 course that calls for earnings growth of 12% to 14% and better performance in its domestic business for pacemakers and defibrillators.

Disappointing results in the domestic business for heart-rhythm devices last year contributed to restructuring moves and job cuts at the St. Paul, Minn. company. St. Jude also issued guidance for sales growth this year of 7% to 11%.

The forecasts were a key part of Wednesday's earnings release following a preliminary fourth-quarter report on Jan. 11 and comments then from Chief Executive Daniel Starks about revisiting the goal for at least 15% annual earnings growth. The company shifted to a more flexible outlook for "double-digit" growth.

There are certain pressures facing device companies, such as a potential industry tax if a health-overhaul bill is signed and higher costs to comply with evolving regulatory rules.

"We're not going to be backed in a corner of saying, well, in the past we have said 15% so we need to make whatever cuts in long-term investment we have to deliver 15% growth," Starks told analysts on a conference call Wednesday.

St. Jude shares were recently down 21 cents to $38.

Leerink Swann analyst Rick Wise said the guidance was positive overall, and "perhaps better than feared," but that weak U.S. sales and a lower-than-expected gross margin outlook could disappoint some investors

The company's guidance range for 2010 earnings was mostly above Wall Street's target and its sales view bracketed the Street's forecast. It also forecast stronger-than-expected earnings for the first quarter.

In the fourth quarter, St. Jude posted earnings of $189.7 million, or 57 cents a share, compared with a loss of $201.2 million, or 58 cents, a year earlier.

The latest period included a mix of charges mainly linked to job cuts and restructuring, plus a gain pegged to a decision not to issue certain compensation awards. The fourth quarter in 2008 was mainly hit by charges linked to an acquisition.

Excluding these items, St. Jude said its per-share earnings rose to 64 cents from 58 cents. The tally in the latest quarter edged ahead of the forecast range St. Jude backed on Jan. 11 and the average forecast among analysts surveyed by Thomson Reuters.

Sales were $1.2 billion, up 6% from a year earlier. There was one less week in the latest period, while favorable foreign-currency rates provided a $50 million boost.

In the company's heart-rhythm business, which includes implantable pacemakers and defibrillators, sales rose 3% from a year ago but were off 1% excluding the currency boost.

Starks said St. Jude still believes this $11 billion market, where competitors are Medtronic Inc. (MDT) and Boston Scientific Corp. (BSX), will grow at a 4% to 6% rate excluding currency. While St. Jude topped this pace outside the U.S. last year, the U.S. business was "virtually flat," Starks acknowledged.

The company made quick moves in the second half of last year following what it felt was poor execution in the home market, including a high-level management change. Overall restructuring moves included cutting about 5% of the company work force, or about 700 jobs, last year.

The company is optimistic its U.S. heart-rhythm business "will get back on track to grow faster than the market in 2010," Starks said.

He also noted that the midpoint of St. Jude's guidance for heart-rhythm sales of $2.9 billion to $3 billion this year represents 6.5% growth, and that the company fully expects to meet or exceed that range.

The company continued in the fourth quarter to see hospitals carefully managing working capital and inventory for heart-rhythm devices, St. Jude officials said. The company mainly sells devices as they're used, but some bigger facilities have traditionally purchased devices in advance to stock their shelves.

The company sees overall sales of $5.015 billion to $5.195 billion this year and $1.175 billion to $1.24 billion in the first quarter. The company sees full-year earnings of $2.71 to $2.76 per share and first-quarter earnings of 66 cents to 68 cents per share.

The company also sees its gross profit margin in a 73.2% to 73.8% range this year, which will be pressured a bit by costs for wireless functions in pacemakers.

Analysts have forecast full-year earnings of $2.71 per share on sales of $5.05 billion. For the first quarter, Wall Street sees earnings of 65 cents on sales of $1.23 billion.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

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