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Anyone trying to figure out



future based on its upcoming quarterly earnings report is in for some serious eyestrain amid a field of footnotes.

Analysts had better have their GAAP/non-GAAP decoder rings because Tuesday's report after the market closes will be so filled with one-time charges and other unusual matters that at least two investment banking firms have warned clients about a "sloppy" fourth quarter.

"We are lowering our expectations to the low end of company guidance," says Mark Landy, of Susquehanna Financial Group, in a May 19 research report to clients. "We also expect guidance for fiscal 2006 to be conservative." Landy, who has a positive rating, was one of those forecasting "sloppy" results for the three months ended April 29.

"Expect a sloppy fourth quarter," says the headline of a research report by Glenn Reicin of Morgan Stanley, who has an overweight rating on the stock.

Repatriation and More

Complicating factors for the quarter include one less selling week vs. the fourth quarter last year, the effect of a $1.35 billion patent fight settlement announced last month, and the recall of some implantable cardioverter defibrillators, or ICDs, which control rapid, dangerous heartbeats.

Other one-time charges will relate to a $50 million breach-of-contract ruling by an arbitrator in favor of another company and a charge for taxes related to Medtronic's repatriation of earnings from foreign subsidiaries for domestic use.

The repatriation is permitted under a tax-holiday law passed last year, allowing for a drastic one-time reduction in taxes on the repatriated earnings. Analysts expect Medtronic to repatriate about $900 million in overseas earnings.

The consensus view among analysts polled by Thomson First Call is fourth-quarter earnings per share of 53 cents and a full-year EPS of $1.86.

For the fiscal year ending April 30, 2006, the average EPS estimate is $2.17. Thomson First Call data usually exclude one-time charges.

Interpreting the Figures

The complicated quarter should present investors with a buying opportunity, says Reicin. "Long-term growth expectations will go largely unchanged," he says. "In some ways, investors might be relieved that management is finally offering conservative guidance."

He predicts Medtronic will offer fiscal 2006 guidance in the range of $2.10 to $2.16. His estimate is $2.14, down from $2.17. Reicin doesn't own shares, and his firm has had an investment banking relationship with the company.

Landy forecasts $2.16 for the current fiscal year. He doesn't own shares, and his firm doesn't do investment banking.

Analysts say the one-less-selling week anomaly -- it happens every six years -- will cause the most confusion among investors. It will probably affect a year-over-year sales comparison by 5% to 8%, says Reicin.

Reicin expects sales of ICDs to be fair despite the selling-week issue and the February announcement that there were nine reports of a shorting of batteries among some 87,000 ICDs. "Simply put, the ICD numbers should come in at an acceptable range given the relatively low expectations," he says.

The subsequent recall of these older ICDs should have "little or no impact" on Medtronic's place in the market, adds Timothy Lee, of Merrill Lynch, in a May 18 report. Lee says he can't ascertain how many patients might need to have the device removed and replaced, although he said conversations with medical professionals indicated 25% to 50% of the total could be affected.

In any case, he expects the recall to cost at worst a penny per share for the fourth quarter. He is keeping his buy rating. He doesn't own shares, but his firm is a market maker and has had an investment banking relationship.

Lee predicts fiscal 2006 earnings of $2.20 a share, or 3 cents above consensus, due to optimism about Endeavor, the drug-coated stent being approved for European markets, and "continued solid growth" in certain ICD sales.

Joining the Club

Medtronic would be the third entrant into the drug-coated stent market behind

Johnson & Johnson



Boston Scientific


. Both companies sell their products in U.S. and foreign markets.

The stents are meshlike metal tubes that are inserted into arteries following a procedure that clears out dangerous vessel-clogging plaque. The stents enable blood to flow more freely, reducing the risk of heart attack or stroke.

The drug-coated stents periodically dispense a chemical that reduces the risk of reclogging. Drug-coated stents do a better job of reducing rates of reclogging than bare metal stents.

The biggest market for stents is the U.S., but Medtronic is still conducting clinical trials of Endeavor in its efforts to convince the Food and Drug Administration to clear the product. Crucial test results will be presented at a medical conference in October.

If all goes well, says Landy, Endeavor could reach the U.S. market in early 2007. Landy says European approval could come as early as this week.