St. Jude Medical, Inc. (STJ)

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St. Jude Medical (STJ)

Q4 2011 Earnings Call

January 25, 2012 8:00 am ET

Executives

Eric Fain - President of Cardiac Rhythm Management Division

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

Michael T. Rousseau - Group President and President of U S division

Analysts

Bruce M. Nudell - UBS Investment Bank, Research Division

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

Frederick A. Wise - Leerink Swann LLC, Research Division

David H. Roman - Goldman Sachs Group Inc., Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

Presentation

Operator

Welcome to St. Jude Medical's Fourth Quarter and Full Year 2011 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 and 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 the cautionary statements described in the company's filings with the SEC, including those described in the risk factors and cautionary statement sections 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 October 1, 2011. The company does not intend to update these statements and undertakes no duty to any person to provide any 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, Jennifer. Welcome to the St. Jude Medical Fourth Quarter and Full Year 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 fourth quarter and full year 2011, and to give sales and earnings guidance both for the first quarter and full year 2012. 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 $1,407,000,000, up approximately 4% over the $1,350,000,000 reported in the fourth quarter of last year. Favorable foreign currency translations versus last year's fourth quarter increased this quarter sales by about $18 million. On a constant-currency basis, fourth quarter sales increased approximately 3% versus last year.

For the full year 2011, net sales were $5,612,000,000, up about 9% over 2010. Favorable foreign currency translations versus those used in 2010 increased 2011's net sales by approximately $183 million, resulting in constant-currency sales growth for the year of approximately 5%. On an organic basis, constant-currency sales growth for the full year 2011 was approximately 1%.

During the fourth quarter, we recognized $72 million or $0.22 per share in after-tax special charges, primarily in connection with our previously announced restructuring action initiated during the second quarter to streamline manufacturing within our CRM business, which consists primarily of closing down operations at our location in Sweden, as well as costs associated with our continuing efforts to leverage our sales and sales support organizations. In addition, we recognized $30 million or $0.10 per share in after-tax charges related to the write-down of certain intangible assets which were determined to be impaired.

Finally, during the fourth quarter, we recognized a $9 million after-tax contribution to the St. Jude Medical Foundation. Comments during this call referencing fourth quarter and full year 2011 results, including earnings per share amounts, will be exclusive of these items.

Earnings per share were $0.86 for the fourth quarter of 2011, a 15% increase over adjusted EPS of $0.75 in the fourth quarter of 2010 and above our guidance range of $0.83 to $0.85. For the full year 2011, adjusted earnings per share were $3.28, a 9% increase over adjusted EPS of $3.01 for the full year 2010.

Before we discuss our financial results for 2011 and offer our sales and earnings guidance for 2012, let me provide a few comments about currency exchange rates and the assumptions we are using in our outlook for this year. The 2 main currencies influencing St. Jude Medical's operations are the euro and the yen. For the fourth quarter, the actual average exchange rates used for the euro and the yen versus the assumptions we used in providing our guidance for the fourth quarter did not result in a material difference in reported sales. In preparing our sales and earnings guidance for the first quarter and full year 2012, we are assuming that each euro will translate into about $1.26 to $1.31 and for the yen, each 76 to 81 yen will translate into USD $1. I will now turn to our discussion of sales by product category.

For the fourth quarter, total Cardiac Rhythm Management or CRM sales, which include revenue from both our ICD and pacemaker product lines, were $728 million, down 4% from last year's fourth quarter, including $8 million of favorable foreign currency translations. On a constant-currency basis, total CRM product sales for the fourth quarter decreased 6%. Total CRM product sales for the full year 2011 were $3,034,000,000, approximately equal to CRM product sales for 2010. Favorable foreign currency translations increased 2011 CRM sales by approximately $92 million. On a constant-currency basis, total CRM product sales for the full year 2011 decreased 3%.

For the fourth quarter, ICD sales were $436 million, down 5% from last year's fourth quarter. U.S. ICD sales were $237 million, a 13% decrease. And international ICD sales were $199 million, an 8% increase over the fourth quarter of 2010, including $4 million of favorable foreign currency translations. On a constant-currency basis, total ICD sales for the fourth quarter decreased 6%.

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