Medical devices major
) is slated to reveal its fourth quarter and fiscal 2011 results
before the opening bell on Wednesday, January 25. The
Minnesota-based company, on January 9, reported preliminary sales
for the fourth quarter. St. Jude expects to post revenues of $1.4
billion for the quarter, up 4% (3% in constant currency) year over
year, in line with the Zacks Consensus Estimate.
Per the preliminary data, revenues from the Cardiac Rhythm
Management ("CRM") division, St. Jude's mainstay, shrunk 4% year
over year to $728 million, indicating sustained weakness in the CRM
market. ICD revenues dipped 5% to $436 million and pacemaker sales
declined 4% to $292 million.
On a positive note, Atrial Fibrillation revenues climbed 13%
year over year to $218 million. Neuromodulation sales jumped 12% to
$121 million. Revenues from the cardiovascular franchise surged 18%
to $340 million.
St. Jude remained optimistic on the earnings front as it expects
adjusted (excluding charges) earnings for the fourth quarter to be
within its guidance range of 83 cents to 85 cents. The current
Zacks Consensus Estimate for the fourth quarter and fiscal 2011 are
84 cents and $3.27, respectively.
Third Quarter Recap
St. Jude's third-quarter 2011 adjusted earnings per share of 78
cents beat the Zacks Consensus Estimate by a couple of cents.
Profit, as reported, climbed 8.7% year over year to $226.5 million
(or 69 cents a share) as healthy sales overshadowed special charges
related to the restructuring activities at the CRM division,
employee termination, collection risk for accounts receivable and
improvement of overseas sales infrastructure.
Revenues surged 11.5% year over year to $1,383 million, also
ahead of the Zacks Consensus Estimate of $1,370 million. The growth
was led by healthy results across the company's Cardiovascular and
Atrial Fibrillation businesses.
Revenues from the core CRM division grew just 2% year over year,
plagued by the beleaguered U.S. ICD market. Atrial Fibrillation and
Neuromodulation franchises posted healthy growth in the quarter
with revenues surging 20% and 10% year over year, respectively. The
cardiovascular business had another strong quarter with revenues
zooming 37%, buoyed by the contribution from the AGA Medical
Estimate Revisions Trend
Estimates for the December quarter have barely moved over the
past week with just 1 out of 21 analysts having lowered his/her
forecast while none raising their estimates. Over the past month, 3
analysts have pruned their estimates accompanied by a sole positive
For fiscal 2011, estimates demonstrate absolute lack of activity
over the past week with no movements in either direction. Over the
past 30 days, estimates are evenly poised with 2 analysts (out of
23) lifting their forecasts along with a couple of downward
Given the lack of movements, estimates for the fourth quarter as
well as fiscal 2011 have hit a plateau over the past week and
With respect to earnings surprises, St. Jude has posted four
positive surprises in the preceding four quarters and we expect
this positive streak to continue in the fourth quarter. St. Jude
has delivered an average positive earnings surprise of 1.93% over
the past four quarters, implying that it has beaten the Zacks
Consensus Estimate by that measure.
St. Jude's solid fundamentals, healthy growth trajectory, strong
product mix, robust pipeline and cost management initiatives remain
encouraging. A spate of new growth drivers (including new products
and emerging markets) are expected to offer opportunities for
accelerated sales growth over the next few years.
We are impressed by St. Jude's ability to deliver consistent
top-line growth and believe that its December quarter results will
be supported by new products. The company's Fortify and Unify
devices are gaining notable traction and increased penetration of
these products should enable it to expand its position in CRM.
The newly approved Unify Quadra cardiac resynchronization
therapy defibrillator ("CRT-D"), the industry's first quadripolar
pacing system, should help the company gain ground in the highly
competitive U.S. defibrillator market in 2012.
In Atrial Fibrillation, new irrigated ablation catheters for
treating cardiac arrhythmias should enable St. Jude to sustain the
healthy growth momentum. The U.S. approval of the deep brain
stimulation ("DBS") system in Parkinson's disease represents a
promising prospect in Neuromodulation. St. Jude may provide some
color on the possible timeline for DBS approval in this indication
in its fourth quarter commentary.
On the Cardiovascular front, synergies of the AGA Medical
acquisition and the new Trifecta line of valves should boost
results in this division. Moreover, emerging opportunities across a
slew of fast-growing therapy areas such as transcatheter aortic
valve implant ("TAVI"), percutaneous mitral valve repair ("PMVR"),
left atrial appendage ("LAA") and renal denervation should set the
stage for growth in the years ahead.
However, St. Jude and its peers
) are contending in a soft CRM market. A still choppy U.S.
defibrillator market continues to weigh on the company's CRM
results as reflected in the pre-announced December quarter
Moreover, pressure on the company's ICD business has been
exacerbated by the Riata defibrillator lead (a thin wire) issue.
The U.S. Food and Drug Administration ("FDA") issued, in late 2011,
an urgent recall of these leads given the potential risk of serious
injury or patient death. We are also cautious about the dilutive
impact of acquisitions and foreign exchange headwinds.
We expect the company to offer some visibility on the prevailing
CRM market condition/trends, an update on its pipeline as well as
guidance for 2012 in its fourth quarter call. Our long-term Neutral
recommendation on St. Jude is in agreement with a short-term Zacks
#3 Rank (Hold).
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