(STJ) St. Jude Beats The Street – Raises Guidance

St. Jude Medical, Inc. (STJ), a large-cap medical devices and technology development company, reported first quarter fiscal 2012 adjusted earnings of 86 cents beating the Zacks Consensus Estimate of 83 cents per share and surpassing the year-ago earnings of 80 cents per share.

Adjusted earnings exclude extraordinary and one-time charges such as restructuring expenses to modernize manufacturing in the Cardiac Rhythm Management (CRM) segment. In the reported quarter, profit dropped 9% to $212 million (or 67 cents a share).


St. Jude reported net revenues of $1,395 million, up 1% year over year, beating the Zacks Consensus Estimate of $1,383 million. Net sales rose 2% on constant currency basis. Healthy growth across the company’s smaller Atrial Fibrillation (AF) and Neuromodulation segments were largely offset by the decline in the core CRM division and the Cardiovascular segment.

On a geographic basis, revenues in the domestic and international markets were $665 million and $730 million, respectively.

Segment Analysis

Revenues from the sluggish CRM segment, St. Jude’s mainstay, dropped 4% year over year (down 3% in terms of constant currency) to $735 million.

Within CRM, revenues from Implantable Cardioverter Defibrillator (ICD) declined 3% (down 2% in constant currency) to $450 million. Sales from pacemaker division dipped 4%, both on reported and constant currency basis, to $285 million.

On a positive note, AF sales jumped 13% (up 14% in constant currency) to $221 million in the quarter. Neuromodulation sales soared 12%, both on reported and constant currency basis, year over year to $103 million.

Revenues from St. Jude’s Cardiovascular segment moved up 3% (up 3% in constant currency) to $336 million. Within Cardiovascular segment, structural heart devices sales increased 8% to $155 million offset by revenues from vascular offerings, which fell 2% year over year to $181 million.


Gross margin declined to 72.7% from 73.5% a year ago. Selling, general and administrative expenses, as a percentage of sales, declined to 35.1% from 37.3% a year ago. Research and development expenses (as a percentage of sales) edged down to 12.5% from 12.8%. Operating margins declined to 21.6% from 23.4% a year ago.

Balance Sheet

St. Jude exited fiscal 2011 with cash and cash equivalents of $1,053 million, 58.6% higher than the previous year. Long-term debt (including current obligations) decreased 7.3% year over year to $2,986 million.


For fiscal 2012, St. Jude revised its earnings forecast to the range of $3.44 – $3.49 per share from the earlier band of $3.43 – $3.48. For the second quarter, the company expects adjusted earnings in the band of 86 cents – 88 cents a share.

St. Jude recently announced the CE Mark approval for its Ellipse ICD device, which is expected to help the company win ground in the highly competitive U.S. defibrillator space.

St. Jude is consistently producing revenue growth and positive earnings surprises over the past several quarters. We are impressed by its solid fundamentals, healthy growth trajectory, strong product mix, robust pipeline and cost management initiatives.

While a host of new growth drivers (including new products and emerging markets) are expected to boost results in 2012 and beyond, we remain cautious about increased competition, a still soft CRM market and the dilutive impact of acquisitions.

A still choppy CRM space overhangs on St. Jude and its peers Medtronic (MDT) and Boston Scientific (BSX). Our long-term Neutral recommendation on St. Jude is in agreement with a short-term Zacks #3 Rank (Hold).

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