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St. Jude Medical Inc. Q1 2010 Earnings Call Transcript

St. Jude Medical Inc. Q1 2010 Earnings Call Transcript

St. Jude Medical Inc. (STJ)

Q1 2010 Earnings Call

April 21, 2010 08:00 am ET


Dan Starks - Chairman, President and CEO

John Heinmiller, EVP and CFO


Bob Hopkins - Banc of America/Merrill Lynch

Larry Biegelsen - Wells Fargo

Mike Weinstein - JPMorgan

Rick Wise - Leerink

Kristen Stewart - Credit Suisse

Derrick Sung - Sanford Bernstein

Neha Sahni

Imran - Deutsche Bank


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Welcome to St. Jude Medical’s first quarter 2010 earnings conference call. Hosting the call today is Dan Starks, Chairman, President and Chief Executive Officer of St. Jude Medical. The remarks made during this conference call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Such forward-looking statements include the expectations, plans, and prospects for the company including potential clinical successes, anticipated regulatory approvals and future product launches and projected revenues, margins, earnings and market shares. The statements made by the company are based upon management’s current expectations and are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include market conditions and other factors beyond the company’s controls and the risk factors and other cautionary statements described in the company’s filings with the SEC including those described in the risk factors and the cautionary statements sections of the company’s annul reports on Form 10-K for the fiscal year ended January 2, 2010. The company does not intend to update these statements and undertakes no duty to any person to provide any such update under any circumstance. At this time all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentations.

It is now my pleasure to turn the floor over to Dan Starks.

Dan Starks

Thank you, Regina. Welcome to the St. Jude Medical first quarter 2010 earnings conference call. With me on the call today are John Heinmiller, Executive Vice President and Chief Financial Officer; Mike Rousseau, Group President; Eric Fain, President of our Cardiac Rhythm Management Division, and Angie Craig, Vice President of Corporate Relations.

I want to first ask John Heinmiller to conduct his normal review of our first quarter results along with his typical update for the entire St. Jude Medical business. I will then address several topics and open it up to your questions. Go ahead, John.

John Heinmiller

Thank you, Dan. Sales for the quarter totaled $1.262 billion, up approximately 11% over the $1.134 billion reported in the first quarter of last year. Favorable foreign currency translations versus last year’s first quarter increased this quarter’s sales by about $43 million. We will update our currency assumptions in a moment, but the actual average exchange rates during the first quarter were within our previous guidance range. On a constant currency basis, first quarter sales increased approximately 8% versus last year.

At the end of 2009, the Federal Research and Development tax credit expired and then it has not yet been extended for 2010. In this circumstance, GAAP requires us to estimate and record our effective income tax rate assuming that the R&D credit is not extended. For purposes of this conference call and our calculation of adjusted net earnings however, we are assuming that the tax credit will be extended for 2010 as in past years.

As a result, comments referencing first quarter results and our guidance for 2010 including EPS amounts are presented based on an effective income tax rate that contemplates the extension of the tax credit retroactive to January 1, 2010. To the extent that the Federal Research and Development tax credit is not renewed. Our effective income tax rate for 2010 would be higher than what is being presented during this call.

Earnings per share were $0.75 for the first quarter of 2010, a 29% increase over EPS of $0.58 in the first quarter of 2009 and above our guidance range of $0.66 to $0.68 for the quarter. On a currency neutral basis, we estimate our earnings per share growth for the first quarter was approximately 20%. As you know three selling weeks prior to the end of the first quarter of 2010, a competitor announced the suspension of all sales of their ICD products in the United States.

We estimate that this dynamic benefited our first quarter US ICD sales by approximately $20 million to $25 million. In preparing our second quarter and full year 2010 guidance we have taken into account, the period in April that this competitive remained out of the US ICD market.

Before we discuss our first quarter 2010 sales results by product category with guidance for the second quarter and the remainder of 2010, let me comment on foreign currency. As discussed on prior calls, the two main currencies influencing St. Jude Medical’s operations are the Euro and the Yen.

In preparing our sales and earnings guidance for the first quarter and full year 2010, we had used exchange rates, which assumed that each euro would translate into about $1.40 to $1.45 and for the yen each 88 yen to 93 yen would translate into $1. For the first quarter the actual average exchange rates for the euro and the yen versus these assumptions did not result in a material difference in reported sales.

In preparing our sales and earnings guidance for the second quarter and the remainder of 2010, we’re assuming that each euro will translate into about $1.33 to $1.38 and that for the yen each 90 yen to 95 yen will translate into $1. This change in assumption regarding currency exchange rates has the impact of decreasing total forecasted sales for the remainder of 2010 by about $40 million to $50 million, which we estimate will reduce EPS by approximately $0.04 to $0.05 over the remainder of the year.

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