Medtronic’s European Sales Decline as Economic Woes HurtMichelle Fay Cortez
Medtronic Inc., the world’s biggest maker of heart-rhythm devices, said revenue from Europe fell, sending the company’s shares down the most in three months.
European sales dropped about 1 percent in the three months ended Jan. 25, after growing 2 to 3 percent in the previous three quarters, Chief Financial Officer Gary Ellis said. The sales decline took hold in January across all the Minneapolis-based company’s divisions and hasn’t abated, he said.
“That’s a 3 percent or 4 percent change in a $1 billion business,” Ellis said in a telephone interview. “It has a meaningful impact. A lot of that happened in January, and that gives us more pause.”
Medtronic shares fell 2.8 percent to $45.80 in New York, the biggest drop since November, on the concern about the European sales. The weakness expanded beyond the countries in southern Europe, where an economic slowdown has been present for some time, said Chief Executive Officer Omar Ishrak.
“There is no question there is softness in the European overall economy,” Ishrak said. “We aren’t sitting around waiting for it to improve. We can catalyze growth with information about the value we are providing with our products. We are providing this data more clearly and with a greater sense of urgency.”
Ishrak, who took the helm at Medtronic in June 2011, has worked to broaden the company’s geographical reach and expand its product offerings so it can withstand the natural ebbs and flows of the business. The slowdown in Europe, seen among patients and governments looking to cut costs, was balanced by a 20 percent surge in emerging market growth and an increase in implant rates for defibrillators and spinal products.
“While we continue to execute in areas we can control, including growing our markets, we’re at the same time early in the process of building a business that is strong enough to offset the variables that are beyond our control,” Ishrak said today in a conference call with analysts. “We’re only at the beginning of establishing our track record.”
Net income increased to $988 million, or 97 cents a share, from $935 million, or 88 cents, a year earlier, the Minneapolis-based company said today in a statement. Earnings excluding one-time items of 93 cents a share beat by 1 cent the average of 24 analysts’ estimates compiled by Bloomberg.
The European slowdown in January was the biggest surprise of the quarter, and muted the advances seen in the spine and pacemaker markets, said Derrick Sung, an analyst with Bernstein Research in New York, in a note to investors. The core spine business is “clearly turning around,” he said.
“This represents the last of Medtronic’s major businesses in which the company is transforming from a share loser to a share gainer,” he wrote. “Though Europe adds a hint of caution to our outlook for the company, we continue to see our investment thesis remaining intact. In particular, the turnaround in the U.S. businesses appears well on track and will be further fueled by upcoming new U.S. product launches.”
The company reiterated its earnings forecast for fiscal 2013 of $3.66 to $3.70 given on Jan. 7.
Medtronic shares have risen 15 percent in the past year.