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Sales and earnings rise at St. Jude Medical in second quarter; 3M sees increase in second-quarter healthcare revenue; ev3 has "historic" second quarter due to sales and net income rise.

Earnings reports can be quite telling. Exactly what they tell, however, is often up for debate.

Take St. Jude Medical Inc., for instance. The St. Paul, Minn.-based firm reported modest increases in sales, gross profit and earnings during the second quarter of 2009, yet executives looked beyond the numbers for reassurance about the company's long-term financial health.

"Productivity improvements are an important driver of our earnings growth. Our goal is to achieve approximately a 29 percent operating profit margin by 2012. We're on track with expansion of our manufacturing operations in cost-advantage locations both in the United States and in other regions around the world, "Daniel J. Starks, St. Jude Medical chairman, president and CEO, told analysts during an earnings conference call. "This is expected to have [an] increasingly visible impact on our profitability in 2010 and beyond. We expect these and other improvement initiatives to strengthen our flexibility to respond successfully to any new market dynamics that may arise from macroeconomic conditions, from healthcare reform, from the evolving regulatory and legal climate or from ongoing pressure on average selling prices."

So far this year, the company's long-term growth plan is paying off. In the second quarter, ended July 4, St. Jude Medical reported net sales of $1.184 billion, a 4 percent increase compared with the $1.135 billion the firm reported in the same quarter last year. Gross profit rose 3.6 percent to $878.8 million, and net earnings jumped 13.7 percent to $219.3 million, or 63 cents per share, according to the company's latest earnings report. St. Jude's earnings matched the second-quarter earnings expectations of analysts to the penny, but the company fell slightly short of the $1.2 billion in sales analysts had predicted.

Figures for the first half of 2009 were just as notable. St. Jude reported $2.31 billion in sales for the first six months of the year, an 8 percent increase compared with the $2.14 billion the company posted in the first haft of 2008. Gross profit jumped 7.5 percent to $1.71 billion, while net earnings climbed 13.8 percent to $420.6 million.

The gains reported during the second quarter (and to some extent, the first half of the year) were achieved partly through strong sales of cardiovascular, atrial fibrillation (AF) and neuromodulation products. The gains made in these product categories helped offset the loss incurred in the sale of St. Jude's cardiac rhythm management (CRM) devices.

Total CRM sales--which include revenue from the company's implantable cardioverter defibrillator (ICD) and pacemaker product lines--slipped 1 percent in the second quarter to $704 million. Fluctuating foreign exchange rates cost St. Jude $42 million in sales compared with the second quarter of 2008; on a constant currency basis, CRM sales rose 5 percent.

ICD sales also fell by I percent, dropping to $400 million. Volatile foreign exchange rates damaged sales in this product category as well, and most likely contributed to the 5 percent drop in international sales of these devices. Conversely, U.S. sales of ICDs inched up 1 percent in the second quarter to $255 million.

Low-voltage device sales slid i percent to $304 million, but on a constant currency basis, rose 6 percent compared with 2008 figures. U.S. pacemaker sales fell i percent to $132 million, while overseas sales remained flat at $172 million.

St. Jude compensated for its loss of CRM product revenue with double-digit growth in AF and neuromodulation product sales. John C. Heinmiller, chief financial officer, said AF product sales increased 16 percent to $156 million, while neuromodulation revenue jumped 33 percent to $81 million. Cardiovascular product sales climbed 7 percent to $243 million.

Heinmiller said the company expects its third quarter earnings per share to range from 61 cents to 63 cents, and its full-year consolidated EPS to be between $2.48 and $2.54. Analysts have predicted an EPS of 63 cents for the third quarter and $2.52 for the full year.

3M Reports Rise in Healthcare Revenue in Q2

The second quarter of 2009 took on a chameleon-like quality at 3M. Depending on the month (or week), the quarter vacillated between several different guises: interesting, challenging or surprising.

And, "impressive." The company's top executive added that last adjective to the mix during a recent conference call with investors. "Compared to the shrinkage of 19.5 percent in the first quarter," 3M Chairman, President and CEO George W. Buckley said," the second quarter was an impressive improvement..."

Indeed it was. Though figures were still down on an annual basis (3M's sales fell 15.1 percent and its earnings slid 15.8 percent compared with the first quarter of 2008), the St. Paul, Minn.-based firm posted significant increases in sales, net income and earnings in the second quarter compared to the first. Sales jumped 11.7 percent to $5.7 billion, while net income climbed 62.7 percent to $843 million and earnings shot up 62.2 percent to $1.20 per share.

"The improvements in the quarter performance can be attributed to several different factors, which are one, slight improvements in the end market demand, particularly in consumer electronics," Buckley noted on the company's second quarter earnings call. "Second, there was a little inventory restocking by some distributors in anticipation of an economic recovery or perhaps to rectify low service levels after cutting inventory too deep. Third, share gains as customers have switched to us as a more reliable supplier than their former partners. Fourth, demand created by X factors such as HIN1 virus. Fifth, and perhaps most importantly, efficiency and productivity improvements produced by tight cost control and restructuring."

A strong performance by the company's healthcare segment might also have contributed to the "impressive" second-quarter showing. Sales of healthcare products--such as stethoscopes, medical tape, procedure trays, and skin and wound care merchandise--reached $1.1 billion, a 2.2 percent increase compared with the first quarter of 2008 and a 6.8 percent jump compared with the $997 million in sales 3M posted in the first quarter of 2009.

Operating income in the healthcare segment was $344 million, a 10.8 percent increase compared with the same period last year and a 12 percent rise compared with the first quarter of this year. 3M achieved growth in medical supplies, food safety and health information systems; oral care sales were flat and drug delivery sales declined on an annual basis but improved 13 percent from the first quarter.

3M executives attributed the growth in medical supplies to the demand this past spring for face masks that people wore to help curb the spread of the HIN1 "swine flu" virus." We saw a tremendous sequential surge in respiratory orders in the second quarter related to the outbreak of the HIN1 virus," said Patrick D. Campbell, 3M's senior vice president and chief financial officer.

The improvement of 3M's financial health in the second quarter led executives to adjust the company's sales forecast. Senior managers now expect organic growth for the year to drop by 10 percent to 13 percent, a more modest decline than their prior forecast of an 11 percent to 15 percent drop. They also revised the company's profit forecast from $3.90 to an estimated EPS of $4.10 to $4.30.

Sales, Net Income Increases Mark "Historic" Quarter at ev3

The second quarter of 2009 was both significant and historic at ev3 Inc. Not only did the nine-year-old company achieve GAAP (Generally Accepted Accounting Principles) profitability for the first time in its history, it also posted considerable gains across all business units.

For the three months ended July 5, ev3 reported $109.1 million in sales, a 1.3 percent increase compared with the $107.7 million in sales the company posted in the second quarter of 2008. Executives, however, said the increase is actually much greater (7 percent) because the 2008 figure represents $6.2 million in "research collaboration revenues" from its former agreement with Merck & Co. When the impact of foreign exchange rates is taken into account, net product sales jumped 12 percent compared with 2008.

The Plymouth, Minn.-based firm's GAAP net income totaled $23.9 million, or 23 cents per share, a significant improvement compared with the $27.4 million loss ev3 reported in the second quarter of 2008. That net income included a tax benefit of 18 cents per share from its June 24 acquisition of Chestnut Medical Technologies Inc., a Menlo Park, Calif.-based developer of minimally invasive therapies for interventional neuroradiology.

Executives instituted a number of programs earlier this year to help the company improve its performance. Besides consolidating some small sales territories, executives hired 27 people to sell Silverhawk devices (used to restore blood flow to body parts with bad circulation) and provided additional training and certification to those responsible for selling peripheral vascular products domestically.

Those programs certainly paid off in the second quarter. Stent sales increased 9 percent to $29.6 million, while thrombectomy and embolic protection devices jumped 12 percent to $7.9 million.

Peripheral vascular sales totaled $72 million in the quarter, a 2 percent rise compared with the $70.7 million the company posted in the second quarter of 2008.

Neurovascular product sales increased 21 percent to $37 million. Embolic product sales jumped 24 percent to $21.6 million and neuro access and delivery product sales climbed 16 percent to $15.4 million.

Executives attributed the gains in neurovascular product sales to the launch of the HyperGlide 5 millimeter balloon and the marketing of its AXIUM coils in China in June. "With our pipeline of new products, continued penetration of our AXIUM coils and Onyx Liquid Embolic and expanded geographical presence, I believe our neurovascular business is well prepared to continue to build upon our number two worldwide revenue share during the year ahead," Robert Palmisano, ev3 president and CEO, noted.

Palimsano's confidence in the company's future performance prompted executives to adjust ev3's full-year sales forecast. During a conference call with analysts, ev3 Chief Financial Officer Shawn McCormick predicted that 2009 sales would range between $435 million and $445 million.

That figure includes $4 million to $5 million in anticipated revenue from the acquisition of Chestnut Medical. Non-GAAP adjusted net earnings are expected to fall between 47 cents and 53 cents per diluted share.
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Title Annotation:Financial News
Publication:Medical Product Outsourcing
Article Type:Company overview
Date:Sep 1, 2009
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