Updated from 2:41 p.m. ESTSt. Jude Medical ( STJ) on Wednesday said fourth-quarter earnings narrowly beat Wall Street estimates, thanks to strong growth for its devices that control rapid, dangerous heartbeats. Investors, however, weren't impressed. The stock fell $1.14, or 3%, to $36.80 on volume that was 2.5 times the average daily trading volume. The St. Paul, Minn.-based company earned $124.8 million, or 33 cents a share, on revenue of $610.7 for the three months ended Dec. 31. The results reflect several one-time items. Excluding items, the company earned $123.3 million, or 33 cents a share. The consensus view of analysts polled by Thomson First Call, which excludes items, was a profit of $118.8 million, or 32 cents a share, on revenue of $609.8 million. For the same period in 2003, St. Jude Medical earned $92.3 million, or 25 cents a share, on revenue of $518.6 million. In addition, the company predicted that first-quarter earnings per share in 2005 would be in the range of 33 cents to 35 cents vs. the consensus estimate of 33 cents. The company's fiscal 2005 EPS estimate is in the range of $1.37 to $1.41 compared to a Thomson First Call average of $1.38. And fiscal 2005 sales will be in the range of $2.7 billion to $2.8 billion, the company said. The consensus prediction is $2.69 billion. St. Jude Medical said its first-quarter and full-year guidance excludes the impact of special charges and of new accounting rules, taking effect midyear, for the expensing of stock options. St. Jude's fourth quarter was paced by a 63% increase in sales of implantable cardioverter defibrillators, or ICDs, to $173 million. These are surgically implantable devices that deliver electrical shocks to the heart to control rapid heartbeats. For the full year, ICD sales rose 41% to $584 million from 2003. "We are encouraged by our gain of market share and we are optimistic we are well-positioned for continued success" in the ICD market, said Daniel J. Starks, the company's chairman and CEO.
A recent study published in the New England Journal of Medicine on the value of ICDs and the pending expansion of Medicare payments for the devices will help the company boost ICD sales. Analysts, however, speculated that the delay in the final rules for Medicare reimbursement led to a soft quarter of sales for the entire ICD industry, which includes market leader Medtronic ( MDT) and second-ranked Guidant ( GDT). "The decline in growth is expected to be temporary" due to the federal government's delay in issuing final reimbursement guidelines, said Glenn Reicin of Morgan Stanley in a research note Wednesday. "As such, most investors will probably give St. Jude Medical a 'free pass' with respect to the minor disappointment." He has an equal weight rating on the stock. (He doesn't own shares, but his firm does and seeks to do business with companies profiled in research reports.) Preliminary Medicare ICD guidelines were issued in September; the final rules should be published by the end of this month. J.P. Morgan analyst Michael Weinstein added that he expects a "noticeable reacceleration in growth in the last two months of the first quarter." Maintaining his overweight rating on St. Jude Medical, Weinstein told clients on Wednesday to buy the stock "on anticipated weakness surrounding the fourth quarter ICD performance." Any concerns about general ICD trends or St. Jude's ICD prospects in the future are "likely to prove transient," he added. (He doesn't own shares, but his firm has had an investment banking relationship with the company.) For fiscal 2004, the company earned $409.9 million, or $1.10 a share, on revenue of $2.29 billion, including one-time items. For fiscal 2003, the company earned $336.8 million, or 91 cents a share, on revenue of $1.93 billion.