Recalls Sock Guidant's Sales

The fourth-quarter top line is better than the company expected, but it misses Wall Street's forecast.
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Guidant

(GDT)

appears to have done better financially than it thought it would in the fourth quarter, but the medical-device maker's results still came in below the more optimistic targets set by Wall Street analysts.

Guidant said Friday that the quarter's sales, hurt by last year's recalls of thousands of heart instruments, totaled $828.2 million, down 14% from $968.2 million in the prior year and falling short of the $851.3 million consensus target carried by Thomson First Call.

Still, the top line did exceed Guidant's own outlook, offered in December, that revenue would be $790 million to $820 million. When the company gave that projection last month, analysts were calling for sales of $928.4 million. Foreign-currency translations lowered revenue by $27 million, or 3%, compared with the previous year.

Earlier this week, Guidant agreed to be acquired by

Boston Scientific

(BSX) - Get Report

, a company that's

now dealing with its own regulatory matters, for about $27 billion. Guidant called off its earlier merger deal with

Johnson & Johnson

(JNJ) - Get Report

.

Earnings dropped to $78.9 million, or 23 cents a share, from $104.5 million, or 32 cents a share, a year ago, reflecting the company's continued investment in drug-eluting stents and implantable defibrillators, as well as product-recall and merger-related expenses. Guidant had a profit from continuing operations of $85.4 million and 25 cents a share in the quarter ended Dec. 31.

When Guidant warned on its results last month, it said fourth-quarter earnings would be 17 cents to 23 cents.

Guidant incurred pretax expenses of roughly $26 million, or 6 cents a share after taxes, primarily for legal expenses resulting from its product recalls and merger costs in the most recent fourth quarter. Adding those expenses back to the profit from continuing operations yields adjusted fourth-quarter earnings of 31 cents a share, 3 cents below analysts' 34-cent consensus.

The Indianapolis-based company also affirmed its previously lowered earnings and revenue forecast for this year. A month after reducing its sales guidance to $3.8 billion to $4 billion, Guidant says it's standing by that figure. Until Guidant cut its forecast, analysts had been looking for $4.11 billion, but they are now at $3.92 billion.

The company also said this year's earnings will be $1.48 to $1.58 a share, when calculated using generally accepted accounting principles. Guidant said it will have a profit of $1.65 to $1.75 a share in 2006, excluding projected research and development expenses of around 17 cents a share, but including recall costs and outlays for an employee-retention program totaling 15 cents a share.

However, even adjusting the projection for the 15 cents of costs would put Guidant's earnings below expectations, implying $1.80 to $1.90. Analysts, on average, want to see $1.96. The previous consensus estimate was $2.43.

For the fourth quarter, worldwide implantable defibrillator sales of $372 million fell 19% from last year, but rose 13% from the third quarter. Global pacemaker sales totaled $134 million, down 24% from last year and 12% from the prior quarter. Coronary stent sales declined 6% overall from the 2004 fourth quarter to $117 million.

Shares of Guidant were losing $1.80, or 2.4%, to $73.46. Boston Scientific was down $1.16, or 5%, at $21.99.