Medtronic Sales Drop in Core Pacemaker Business -- Update

By Angela Chen 

Medtronic Inc. posted weaker sales in its core pacemaker business in the October quarter, hurt by competition in the market for implanted cardiac defibrillators.

Medtronic, which is expected to launch a new defibrillator product soon, is facing strong pressure from Boston Scientific Corp. and St. Jude Medical Inc. Its sales of implanted cardiac defibrillators, which account for about 15% of total sales, dropped 5% in constant currency to $670 million, missing analyst expectations of $680 million.

The medical device maker also backed its $43 billion commitment to buy Covidien PLC, a move that would expand its portfolio to include more surgical supplies and vascular and respiratory care.

The merger remains on schedule to close in early 2015, Chief Executive Omar Ishrak said. The companies plan to hold a special meeting in January to seek shareholder approval of the merger.

Medtronic's plan to buy the Irish health-care-products company has drawn scrutiny over a tax tactic criticized by U.S. government officials. The acquisition plan involves Medtronic reincorporating in Ireland, where Covidien is based, and becoming Medtronic PLC. The tactic of reincorporating in another country, called a tax inversion strategy, would lighten the company's U.S. tax burden.

In all, Medtronic reported earnings for the second quarter ended Oct. 24 of $828 million, or 83 cents a share, down from $902 million, or 89 cents a share, a year ago. Excluding charges such as a $100 million donation to the Medtronic Foundation, per-share earnings were 96 cents, compared with 91 cents a year earlier.

Revenue rose 5% to $4.37 billion from $4.19 billion.

Analysts polled by Thomson Reuters had called for earnings of 96 cents a share and revenue of $4.37 billion.

Medtronic's cardiac and vascular group posted a 5% revenue increase to $2.29 billion. The restorative therapies group's revenue grew 4% to $1.65 billion, while the diabetes group's revenue increased 10% to $430 million.

The company backed its earnings guidance for the year.

Write to Angela Chen at [e-mail]

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