St. Jude Medical's CEO Discusses Q3 2011 Results - Earnings Call Transcript

St. Jude Medical (STJ)

Q3 2011 Earnings Call

October 19, 2011 8:00 am ET

Executives

John C. Heinmiller - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Daniel J. Starks - Chairman of the Board, Chief Executive Officer and President

Analysts

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Frederick A. Wise - Leerink Swann LLC, Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Joanne K. Wuensch - BMO Capital Markets U.S.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Presentation

Operator

Welcome to St. Jude Medical's Third Quarter 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, 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 control 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 Cautionary Statement section of the company's annual report on Form 10-K for the fiscal year ended January 1, 2011, and quarterly report on Form 10-Q for the fiscal quarter ended July 2, 2011. The company does not intend to update these statements and undertakes no duty to any person to provide such update under any circumstance.

[Operator Instructions] It is now my pleasure to turn the floor over to Dan Starks.

Daniel J. Starks

Thank you, Brooke. Welcome to the St. Jude Medical Third Quarter 2011 Earnings Conference Call. With me on the call today are John Heinmiller, Executive Vice President and Chief Financial Officer; Eric Fain, President of our Cardiac Rhythm Management division; Mike Rousseau, Group President; and Angie Craig, Vice President of Corporate Relations and Human Resources.

Our plan this morning is for John Heinmiller to provide his normal review of our financial results for the third quarter 2011 and to give sales and earnings guidance for the fourth quarter and full year 2011. I will then address several topics and open it up for your questions. Go ahead, John.

John C. Heinmiller

Thank you, Dan. Sales for the quarter totaled $1,383,000,000, up approximately 12% over the 1,240,000,000 reported in the third quarter of last year. Favorable foreign currency translations versus last year's third quarter increased this quarter sales by about $73 million. On a constant currency basis, third quarter sales increased approximately 6% versus last year.

During the third quarter, we recognized $21 million or $0.06 per share in after-tax special charges, primarily in connection with our previously announced restructuring actions initiated during the second quarter to realign certain activities within our CRM business, as well as costs associated with our continuing efforts to improve our international sales and sales support organization. In addition, we recognized $9 million or $0.03 per share in after-tax charges related to increased collection risk for accounts receivable related to one customer in Europe.

Additional information about these charges can be found in today's press release. Comments during this conference call referencing third quarter results and guidance for our full year 2011 results, including earnings per share, will be exclusive of these items.

Earnings per share were $0.78 for the third quarter of 2011, an 8% increase over adjusted EPS of $0.72 in the third quarter of 2010. During the third quarter, we completed our $500 million share repurchases program that was announced in August. This reduced the weighted average shares of common stock outstanding in the third quarter by approximately 6 million shares, which provided one $0.01 of benefit to our adjusted EPS.

Before we discuss our third quarter 2011 sales results by product category, with guidance for the fourth quarter, let me comment on foreign currency. As discussed on prior calls, the 2 main currencies influencing St. Jude Medical's operations are the euro and the yen. In preparing our sales and earnings guidance for the third quarter and full year 2011, we used exchange rates which assumed that each euro would translate into about $1.37 to $1.42 and each JPY 78 to JPY 83 would translate into USD $1. For the third 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 fourth quarter, we have updated the currency rates used in our model. We are now assuming that for the fourth quarter of 2011, each euro will translate into about $1.33 to $1.38 and that each JPY 76 to JPY 81 will translate into USD $1. This change in assumption regarding currency exchange rates decreases total forecasted sales for the fourth quarter of 2011 by about $20 million to $25 million, which we estimate will reduce fourth quarter EPS by approximately $0.02 to $0.03.

Now for the sales by product category discussion for the third quarter. Total Cardiac Rhythm Management, or CRM sales, which includes revenue from both our ICD and pacemaker product lines, were $751 million, up 2% from last year's third quarter. On a constant currency basis, third quarter CRM sales were down 3% versus the third quarter of last year.

For the third quarter, ICD sales were $445 million, up 1% from last year's third quarter. On a constant currency basis, third quarter ICD sales decreased 3% versus last year. U.S. ICD sales were $257 million, down 10% versus last year's third quarter. International ICD sales were $188 million, a 21% increase over the third quarter of 2010, including $20 million of favorable foreign currency translations.

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