Nov. 19 (Bloomberg) -- Medtronic Inc., the world's biggest maker of heart-rhythm devices, said second-quarter profit fell 2.2 percent as sales of its top-selling products, implantable defibrillators, slowed after the recall of a faulty part.

Net income declined to $666 million, or 58 cents a share, for the fiscal quarter ended Oct. 26, from $681 million, or 59 cents, a year earlier, the Minneapolis-based company said today in a statement. Profit missed the average estimate of analysts surveyed by Bloomberg by 1 cent a share.

Sales of Medtronic's defibrillators, or ICDs, used to shock stopped hearts back to normal, fell 16 percent, to $639 million. On Oct. 15, Medtronic halted sales of its Sprint Fidelis wires, used to connect the devices to the heart, after they were linked to five deaths. The recall was another setback for the $5.6 billion market for defibrillators, which shrank after Medtronic and competitors recalled products in 2005.

``The recall impact was less than expected, but when you adjust for that, ICD sales were still weak,'' said Jeff Jonas, an analyst at Gabelli Securities Inc. in Rye, New York, in an e- mailed interview today. ``I don't think it was as bad as many people feared.''

Costs from the recall, and its effect on sales, reduced second-quarter profit by 9 to 10 cents a share, Medtronic executives said on a conference call.

Medtronic shares fell 52 cents, or 1.1 percent, to $45.25 at 4:02 p.m. in New York Stock Exchange composite trading. The earnings were released after U.S. markets closed. The stock has dropped 15 percent this year.

Analyst Estimates

The company was expected to report net income of 59 cents a share, according to the average estimate of 18 analysts surveyed by Bloomberg. A Thomson Financial estimate, based on 27 analysts, was for earnings of 56 cents a share. The parameters of the Thomson number weren't clear. A total of 22 analysts polled by Bloomberg had made an average sales estimate of $3.09 billion.

The company's total sales rose 1.6 percent to $3.12 billion. Medtronic also reported inventory write-offs and other expenses of $31 million because of its recall. Medtronic said earlier that halting sales of the wires would lower the company's revenue by as much as $250 million.

``This was a tough quarter primarily due to our action surrounding Fidelis,'' said Chief Executive Officer William Hawkins in a call with investors and analysts today. ``Once we confirmed we had an issue with Fidelis we dealt with it. We are in challenging times.''

Mixing and Matching

The wires, called leads, may break or erode, according to Medtronic. The component delivers electrical jolts from the stopwatch-sized defibrillators implanted in the chest to regulate a faltering heartbeat. Leads cost $1,000 to $3,000 and can fail because of flexing and bending, according to Bruce Wilkoff, a cardiologist at the Cleveland Clinic.

The withdrawal of the leads hurt sales of the $30,000 defibrillators, especially in Japan, where the Sprint Fidelis is the only one of Medtronic's leads approved for sale, the company said. Doctors can mix and match different brands of approved leads and defibrillators, although they don't tend to do so in Japan, analysts say.

``The feedback that I have received from physicians is that they will be using less Medtronic and more St. Jude leads,'' Joanne Wuensch, an analyst at BMO Capital Markets in New York, said in Nov. 12 interview. St. Jude ``will take greater share, but of a smaller market.''

Recalls

St. Jude Medical, based in St. Paul, Minnesota, and Natick, Massachusetts-based Boston Scientific Corp.'s Guidant unit follow Medtronic in defibrillator sales. About 300,000 defibrillators have been recalled by the three companies since 2005, after some of the devices were linked to deaths.

Medtronic also makes drug-coated stents, artificial spinal disks, devices that ease chronic disease symptoms by sending electrical pulses to the nervous system, continuous blood-sugar monitors for diabetics, and tools and hardware for orthopedic surgeons.

Sales grew 10 percent in the spinal division, 8 percent in the vascular division, 10 percent in the neurological unit and 16 percent in diabetes, the company reported.

Medtronic said in October it won European approval of its latest drug-coated stent, the Endeavor Resolute.

The company said it expects the U.S. Food and Drug Administration to approve an earlier version of Endeavor before the end of the year, putting it on the market ahead of Abbott Laboratories' Xience. Advisers to the FDA recommended Endeavor's approval last month.

Many doctors and researchers say Endeavor may offer a safer option. Medtronic is trying to differentiate Endeavor from the two approved drug-coated stents in the U.S., Boston Scientific's Taxus and Johnson & Johnson's Cypher, after they were linked to deadly blood clots. Sales of Taxus and Cypher plunged in the past year amid safety concerns.

To contact the reporter on this story: Emily Brown in Washington at ebrown18@bloomberg.net.

Last Updated: November 19, 2007 18:17 EST