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Medtronic Sees Year Profit Below Consensus

Excluding charges, the company earned $645.4 million for the fiscal fourth quarter.

Updated from 5:05 p.m. EDT



issued fiscal fourth-quarter financial results Tuesday that were essentially in line with Wall Street expectations.

The Minneapolis-based medical device maker posted record sales for the quarter ended April 29. However, the company's earnings per share guidance for the current fiscal year fell just below the consensus estimate.

Including one-time charges, and there were a lot of them, Medtronic earned $194.4 million, or 16 cents a share, on revenue of $2.78 billion for the fourth quarter. That compares with a profit of $568.9 million, or 47 cents a share, on revenue of $2.67 billion for the similar period last year, which contained one more week than the just-ended quarter.

Excluding charges, Medtronic reported a profit of $645.4 million, or 53 cents a share, for the quarter. The consensus of analysts polled by Thomson First Call had predicted a profit of 53 cents a share on revenue of $2.83 billion for the fourth quarter.

For the fiscal year, the consensus estimate was a profit of $1.86 a share with revenue of $10.11 billion. Excluding charges, Medtronic earned $1.86 a share on revenue of $10.05 billion for the year.

For the current fiscal year, Gary Ellis, the chief financial officer, predicts earnings per share in the range of $2.10 to $2.15 and revenue of $11.1 billion to $11.6 billion. On average, analysts expect earnings per share of $2.17 and revenue of $11.5 billion. For fiscal 2007, Ellis predicts earnings of $2.37 to $2.47 a share and revenue of $12.2 billion to $13.3 billion.

Art Collins, chairman and chief executive, said the fiscal year results were paced by implantable cardioverter defibrillators, or ICDs, and spine surgery products, which accounted for more than 42% of fourth-quarter sales. ICDs are surgically implanted devices that control erratic, rapid heartbeats. "We enter fiscal 2006 with good momentum," he said.

The most significant charges in the latest quarter included $630 million in pretax costs to cover the settlement of a patent dispute and a roughly $80 million payment on a breach of contract ruling in another legal matter. Medtronic is paying $1.35 billion in total to settle the spine products patent fight.

In addition, Medtronic is taking a $49 million tax charge related to its plan to repatriate $935 million in earnings from foreign subsidiaries. The move is permitted under a tax-holiday law passed last year, allowing for a drastic one-time reduction in taxes on the repatriated earnings. Medtronic said it will repatriate the money during the fourth quarter.

Medtronic officials took special note of ICD sales, which rose 14% in the fourth quarter to $682 million despite the shorter selling period and a recall of some older products. During the quarter, Medtronic notified patients and physicians that "a very small percentage" of some devices, built between April 2001 and December 2003, had been found to have rapid battery depletion.

About 87,000 devices were built during this period, and Medtronic said 13,000 have been replaced. The company said there have been no deaths or injuries related to the battery problem.

William Hawkins, the president and chief operating officer, said he expected European approval "any day now" for Endeavor, Medtronic's drug-coated coronary artery stent. Hawkins added that the stent could enter the U.S. market in 2007.

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Medtronic issued its financial results after markets had closed. In regular trading, its stock lost 14 cents to $52.78. After hours, the shares dropped another 38 cents.