St. Jude keeps a strong beat despite weak economy: Heart device maker's 2Q tops Wall Street estimates

Thu. July 17, 2008; Posted: 03:13 AM

St. Jude Medical underscored that truth Wednesday by reporting second-quarter revenue and profit that beat analyst expectations.

The Little Canada-based company became the third medical device manufacturer this week to beat expectations at a time when gloom pervades the economic outlook. St. Jude also upped its earnings guidance for the year, and investors sent its stock up more than 7 percent.

Demand for St. Jude's products "tends to be really indifferent to what the broader economic environment is experiencing," John Heinmiller, the company's chief financial officer, said in an interview Wednesday.

St. Jude's revenue for the quarter came in at $1.14 billion, up 20 percent from the year-ago period's $947 million. Profit rose to $201.1 million, or 58 cents per share, from $134.8 million, or 39 cents per share, after an after-tax charge. Adjusted for an expected gain from a tax credit, earnings per share came in at 60 cents; analysts had been expecting 55 cents.

The strong results were aided in part by the weak dollar, which boosts revenue from product sales outside the U.S. That dynamic -- which increased St. Jude's revenue by about $64 million in the quarter -- is providing "a huge tailwind right now" for several medical device companies, said David Heupel, a portfolio manager with Thrivent Financial for Lutherans in Minneapolis.

But St. Jude also saw resurgence in the market for implantable cardiac

defibrillators -- $30,000 devices that shock failing hearts back into rhythm. Sales of the devices were up 24 percent over the year-ago period to $406 million. ICD sales had been depressed since 2006 following a string of high-profile product recalls.

Implantable defibrillators are a big product in the Twin Cities, serving as the top single source of revenue not only for St. Jude, but also for Fridley-based Medtronic. The devices also are one of the top two product lines for Natick, Mass.-based Boston Scientific, which makes implantable defibrillators at a division in Arden Hills.

During a conference call Wednesday with investors, St. Jude Chief Executive Dan Starks attributed the defibrillator sales increase to a variety of factors, including gains in market share. The magnitude of St. Jude's share gain, Starks said, isn't yet clear because Boston Scientific won't report quarterly results until next week, while Medtronic won't report until August.

But Starks said the overall market for cardiac rhythm management products -- which also includes pacemakers -- now seems to be growing at a rate of 7 to 9 percent. That's better than the 5 to 7 percent rate St. Jude previously forecast.

St. Jude Medical upped its guidance for the year by 13 cents per share, to a range of $2.28 to $2.33.

The company's strong performance in implantable heart devices was complemented by strong sales of equipment for treating patients with atrial fibrillation, as well as so-called "neurostimulation" devices that work like pacemakers to block pain signals in the spine.

In a research note, analyst Joanne Wuensch of BMO Capital Markets said St. Jude delivered "above expectations in each of its key product categories."

St. Jude shares rose $3.16, or 7.2 percent, to $47.12 Wednesday. Boston Scientific shares closed up nearly 5 percent at $13.49, and Medtronic shares advanced about 3 percent to $54.10.

Christopher Snowbeck can be reached at 651-228-5479.

ST. JUDE MEDICAL

Second Qtr. ended June 28

(in thousands, except per share)

2008 2007

Revenue $1,135,760 $947,336

Net Inc. $201,059 $134,800

Per Share $0.60 $0.45

Six Months

Revenue $2,146,498 $1,834,314

Net Inc. $385,840 $280,525

Per Share $1.14 $0.85

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