St. Jude Tops Forecasts

Sales and earnings both beat Wall Street's targets.
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Updated from 8:54 a.m. EDT

St. Jude Medical

(STJ)

posted lower third-quarter earnings amid charges and a drop in implantable defibrillator sales, but the results surpassed expectations.

The medical-device maker earned $116 million, or 32 cents a share, compared with $168 million, or 44 cents a share, in the year-ago quarter.

St. Jude took a charge of $35 million, or 6 cents a share, related to the combination of its cardiac surgery and cardiology divisions and changes in its sales and customer-service operations. The company also recorded a charge of 3 cents a share on stock-based compensation.

Excluding charges, St. Jude earned 41 cents a share. Analysts surveyed by Thomson First Call expected earnings of 37 cents a share.

The St. Paul, Minn., company reported sales of $821 million, up 11% from $738 million a year earlier. The results beat analysts' target for sales of $819.2 million. Shares fell 1.2% to $36.82.

Implantable cardioverter defibrillator sales fell for the second quarter in a row, down 2% to $271 million, while pacemaker sales rose 7% to $248 million.

Though the overall U.S. ICD market has been suffering since last year's wide recalls of Guidant devices, St. Jude expects the market to stabilize and eventually grow.

Boston Scientific

(BSX) - Get Report

bought Guidant earlier this year.

Based on St. Jude's estimates, the global ICD market has decreased 4% to 6% from a year ago, but the weakness has been based in the U.S. Sales of the devices elsewhere were up 29%.

Defibrillators were initially guilty of cannibalizing the sales of St. Jude's pacemakers when they were first introduced, but sales of the older devices have been improving, said Daniel Starks, St. Jude's chairman, president and CEO.

Pacemaker sales have exceeded the company's expectations for two quarters in a row, Starks said during a conference call. "We think that we're taking share in a market that's picking up," he said.

Sales in St. Jude's atrial-fibrillation business rose 29% to $81 million, while cardiology products sales rose 4% to $109 million. Cardiac surgery sales totaled $68 million, up 10%, with heart-valve sales rising 10% to $64 million.

Sales of neuromodulation devices were $44 million, up 13% from Advanced Neuromodulation Systems' stand-alone sales in the year-ago quarter. St. Jude, which didn't have neuromodulation sales during the third quarter of 2005, acquired Advanced Neuromodulation late last year.

"Our third-quarter results reinforce our optimism that we are well positioned to return to stronger growth in 2007 and beyond," Starks said. "We believe that we continued to gain market share in ICDs, pacemakers and atrial-fibrillation products, all of which are key to our long-term success."

The company's guidance, however, was slightly short of estimates. The company expects fourth-quarter earnings of 38 cents to 40 cents a share. Analysts, on average, project earnings of 41 cents a share.

ICD revenue for the fourth quarter should be $265 million to $295 million, St. Jude said. Additionally, the company forecast atrial-fibrillation product revenue of $80 million to $85 million, cardiology sales of $105 million to $115 million, cardiac surgery sales of $65 million to $70 million and neuromodulation revenue of $42 million to $47 million.

St. Jude acknowledged that there's little visibility for the fourth quarter, and it "would not stun us" if the company was wrong about its ICD market expectations, Starks said.