St. Jude EPS Beats, Raises View - Analyst Blog
April 21 2011 - 4:00AM
Zacks
Medical devices giant St.
Jude Medical (STJ) continues its positive earnings
surprise streak as its first-quarter 2011 adjusted earnings
per share of 80 cents has topped the Zacks Consensus Estimates of
78 cents and exceeded the year-ago earnings of 75 cents. This
represents the Minnesota-based company’s seventh consecutive
quarter of outperformance.
The adjusted earnings exclude
charges of $28 million, primarily associated with the company’s
acquisition of cardiac devices maker AGA Medical. Net earnings, as
reported, clipped 2.2% year over year to $233 million (or 71 cents
a share), hurt by these charges.
The Quarter in
Detail
Revenues
Revenues jumped 9% year over year
to $1,376 million, matching the Zacks Consensus Estimates. Revenues
were boosted by double-digit growth across the company’s
Cardiovascular, Atrial Fibrillation and Neuromodulation businesses.
Foreign currency translation contributed roughly $17 million to the
top line.
Segment-wise
Results
Revenues from the company’s core
Cardiac Rhythm Management (“CRM”) division edged up 1% year over
year to $762 million as higher ICD sales (up 3% to $465 million)
were partly masked by a decline in Pacemaker sales (down 1% to $297
million). St. Jude contends with heightened competition in a mature
pacemaker market. Nevertheless, the company’s new Fortify and Unify
defibrillators are gaining notable traction, thereby boosting its
ICD business.
Atrial Fibrillation revenues soared
15% year over year to $195 million while Neuromodulation revenues
climbed 10% to $92 million. Sustained adoption of the coimpany’s
deep brain stimulation (“DBS”) systems and the Eon Mini SCS system
is driving the results of its Neuromodulation business.
Revenues from the Cardiovascular
unit zoomed 28% year over year to $327 million, boosted by the
contributions from AGA Medical. Vascular products sales rose 8% to
$184 million while structural heart product revenues cruised 66% to
$143 million benefiting from the addition of the AGA Medical
product lines.
Margins
Gross margin fell to 73.5% from
74.5% a year ago as higher cost of sales (up 13.5%) more than
offset an increase in the top line. Selling, general and
administrative expenses, as a percentage of sales, increased to
37.3% from 35.1% a year ago. Research and development expenses (as
a percentage of sales) increased modestly to 12.8% from 12%.
Operating margins declined to 23.4% from 27.4% a year ago.
Financial
Condition
St. Jude exited the quarter with
cash and cash equivalents of $663.8 million, a roughly 25%
year-over-year increase. However, long-term debt rose nearly 50%
year over year to $2,558.5 million.
Guidance
Raised
St. Jude has raised its earnings
forecast for fiscal 2011. The company now envisages adjusted
earnings per share of $3.28-$3.33 for the full year, up from its
earlier expectation of $3.25-$3.30. For second-quarter fiscal 2011,
the company expects adjusted earnings per share in the band of 83
cents to 85 cents. The current Zacks Consensus Estimates for second
quarter and fiscal 2011 are 84 cents and $3.28, respectively.
While St. Jude is well placed to
grow its CRM market share (especially in ICDs) on the back of new
product launches, it has challenges ahead. The company and its
rivals Medtronic (MDT) and Boston
Scientific (BSX) are battling for market share in a soft
CRM market.
Competition has intensified with
the launch of the Protecta line of defibrillators by Medtronic in
March 2011 followed by St. Jude’s recent launch of ShockGuard
technology, designed to be used with its Fortify and Unify devices
to reduce inappropriate shocks to patients with ICDs. This is
expected to ignite price competition.
While we are impressed by St.
Jude’s solid fundamentals, strong product mix, healthy growth
trajectory and operating leverage, we remain wary about
competition-driven pricing pressure. Our long-term Neutral
recommendation on the stock is supported by a short-term Zacks #3
Rank (Hold).
BOSTON SCIENTIF (BSX): Free Stock Analysis Report
MEDTRONIC (MDT): Free Stock Analysis Report
ST JUDE MEDICAL (STJ): Free Stock Analysis Report
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