Medical devices major,
St. Jude Medical, Inc.
) third quarter 2012 adjusted earnings of 83 cents per share beat
the Zacks Consensus Estimate of 81 cents per share and surpassed
the year-ago earnings of 78 cents per share. Adjusted earnings
exceeded the upper-end of the company's previously announced
guidance by a penny.
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Adjusted earnings exclude extraordinary and one-time charges
totaling 27 cents, such as restructuring expenses associated with
realignment of the product division and support functions as well
as expenses to modernize manufacturing at the Cardiac Rhythm
Management (CRM) segment, impairment expenses and an income tax
In the reported quarter, profits dropped 22.5% to $176 million
(or 56 cents a share) on account of weak revenue generation and a
contraction in operating margin.
St. Jude reported net revenues of $1,326 million, down 4% year
over year. Revenues missed the Zacks Consensus Estimate of $1,342
million. However, net sales grew less than 1% on constant
currency basis. All segments reported disappointing results,
especially Cardiac Rhythm Management (CRM) and Cardiovascular
units, except the Atrial Fibrillation (AF) business.
On a geographic basis, revenues from the domestic and
international markets were $639 million (down 2.7%) and $687
million (down 5.4%), respectively.
Revenues from the core CRM business declined 8% year over year
(down 4% in terms of constant currency) to $691 million.
Within CRM, revenues from Implantable Cardioverter Defibrillator
(ICD) dropped 7% (down 4% in constant currency) to $412 million.
Sales from the pacemaker division fell 9% (down 4% in constant
currency) to $279 million.
Neuromodulation sales inched down 1%, (up 2% in constant
currency) year over year to $101 million. However, AF sales
climbed 9% (up 13% in constant currency) to $220 million in the
Revenues from St. Jude's Cardiovascular segment declined 4% (up
1% in constant currency) to $314 million. Within Cardiovascular
segment, structural heart devices sales decreased 4% to $145
million and revenues from vascular offerings dipped 5% year over
year to $169 million.
Gross margin remained flat year over year at 73.2%. Selling,
general and administrative expenses, as a percentage of sales,
edged down to 34.4% from 36.5% a year ago. Research and
development expenses (as a percentage of sales) were 12.8%,
roughly flat year over year. Operating margins decreased to 17.7%
from 22.5% a year ago.
St. Jude exited the third quarter of 2012 with cash and cash
equivalents of $1,051 million, 9.5% higher than the previous
year. Long-term debt decreased 32% year over year to $1,983
The company authorized a share repurchase program of up to $300
million as a measure to offset dilution related to stock
compensation programs in 2013 and achieve earnings power.
For full-year 2012, St. Jude revised its adjusted earnings
forecast to the range of $3.42-$3.44 per share from the earlier
band of $3.40-$3.45. On a reported basis, the company lowered its
expected earnings to be in the range of $2.70-$2.72 per share
from the earlier range of $3.00-$3.05 per share.
For the fourth quarter, the company expects adjusted earnings in
the band of 86 cents-88 cents a share. On a reported basis, the
company expects earnings to be between 70 cents and 72 cents for
the fourth quarter.
With a market cap of $13.48 billion, St. Jude is a leading
medical device manufacturer maintaining a solid rate of growth
over the past decade. We believe that new product development and
penetration into emerging markets will drive long-term growth for
St. Jude is aggressively realigning its operating segments in
order to lower operating expenses as well as to hedge against the
upcoming MedTech tax from 2013. Moreover, we are impressed by the
company's efforts to deliver incremental returns to investors
leveraging its solid balance sheet, healthy free cash flow and
However, weak foreign exchange, competitive pressures and a
sluggish CRM market, given the ongoing difficult macroeconomic
conditions continue to be a drag on the company's results. St.
Jude and its peers
Boston Scientific Corporation
) are contending in a soft CRM market. Our long-term Neutral
recommendation on St. Jude is in agreement with a short-term
Zacks #3 Rank (Hold).