2nd UPDATE: St. Jude Medical 1Q Hit By Charges, But Guidance Up

St. Jude Medical Inc.'s (STJ) first-quarter earnings fell 2.2%, nicked by acquisition-related charges, but sales improved amid gains in all of the company's major medical-device product categories.

The St. Paul, Minn., company boosted its full-year earnings and sales guidance Wednesday while issuing second-quarter forecasts that brackets Wall Street's expectations.

St. Jude has managed to outpace sluggish growth in a market for implantable defibrillators, which is the company's biggest business, with help from new products. It competes closely there with Medtronic Inc. (MDT) and Boston Scientific Corp. (BSX).

St. Jude's defibrillator sales grew only 3% in the first quarter, but the company was comparing against a period last year when it picked up $25 million in sales from Boston Scientific, which temporarily stopped selling defibrillators in the U.S. while it sorted out regulatory paperwork issues. Without that impact, St. Jude said its defibrillator sales were up 9% in the recent quarter.

The company is pumping up spending on its product pipeline this year and is making "good progress developing the new growth drivers we need to return to double-digit" percentage growth on a sustained basis, Chairman and Chief Executive Daniel Starks said during a conference call.

The company said Wednesday that one of its important new products--a replacement heart valve called Trifecta--just won U.S. Food and Drug Administration approval. Starks noted that this product contributed to first-quarter sales growth above 30% for the company's European tissue-valve business and said the U.S. sales force is trained and ready to start selling the product.

St. Jude shares recently traded up 3.5% to $52.77, and are up 28% over the last 12 months. The company recently announced a new quarterly dividend of 21 cents a share.

St. Jude reported a profit of $233.4 million, or 71 cents a share, down from $238.6 million, or 73 cents, a year earlier. Excluding items such as charges related to the company's acquisition of AGA Medical Holdings and tax benefits, earnings rose to 80 cents from 75 cents.

Analysts surveyed by Thomson Reuters had forecast, on average, earnings of 78 cents a share in the recent quarter.

Revenue climbed 9% to $1.38 billion, about matching Wall Street expectations. Favorable currency rates added about $17 million.

Sales in the company's heart-rhythm business, which includes pacemakers and defibrillators, inched up 1% to $762 million. The sluggish growth reflects both a sales decline for pacemakers and last year's bonus defibrillator sales pegged to Boston Scientific's issues. Overall heart-rhythm sales were within the company's forecasted range.

The 1% slip in pacemaker sales reflects disruption in Japan following the earthquake and tsunami there, plus St. Jude's move to direct sales rather than sales through a distributor in that country, Chief Financial Officer John Heinmiller said in an interview. He noted that U.S. pacemaker revenue rose 2% and said "we actually were encouraged by our pacemaker sales."

Elsewhere at St. Jude, sales of systems used to treat the rhythm disorder atrial fibrillation rose 15% to $195 million, topping the company's expectations. Sales of cardiovascular products, which now include products from AGA Medical, rose 28% to $327 million.

Sales of neuromodulation products increased 10% to $92 million.

St. Jude raised the top and bottom ends of its adjusted, full-year earnings guidance by 3 cents to a range of $3.28 to $3.33 a share. It also increased its full-year sales forecast to a range of $5.69 billion to $5.85 billion, which reflects a mix of increased product sales and a boost from favorable currency rates, but also pressure on Japanese sales.

St. Jude gets 10% of its sales from Japan and said the situation there reduced sales by $5 million in the first quarter and is expected to have a $25 million to $30 million hit over the rest of this year. That negates the company's increased expectations for how much translating foreign currency into dollars will benefit sales this year.

For the second quarter, St. Jude forecasted earnings of 83 cents to 85 cents on sales of $1.41 billion to $1.47 billion.

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

--Nathan Becker contributed to this article.

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