Medtronic net down 2 pct as ICD wire recall weighs

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CHICAGO (Reuters) - Medtronic Inc. <MDT.N> on Monday said quarterly net earnings fell 2 percent from a year ago after its decision to stop selling a faulty component used with its implantable heart rhythm devices hurt revenue.

By Susan Kelly

CHICAGO (Reuters) - Medtronic Inc. <MDT.N> on Monday said quarterly net earnings fell 2 percent from a year ago after its decision to stop selling a faulty component used with its implantable heart rhythm devices hurt revenue.

The medical device maker last month suspended sales of the Sprint Fidelis line of leads, or wires that link the heart to an implantable cardioverter defibrillator (ICD), saying the equipment may have contributed to five patient deaths.

"Needless to say, this was a tough quarter," Medtronic Chief Executive Bill Hawkins told analysts on a conference call.

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Earnings in the quarter, however, exceeded analysts' expectations, which had been scaled back to reflect the possibility of a bigger hit to profits. The company's comments on its full-year outlook were also reassuring, analysts said.

Medtronic said its fiscal second-quarter net income was $666 million, or 58 cents a share, compared with $681 million, or 59 cents a share, a year ago.

That beat analysts' average forecast of net earnings of 55 cents a share, according to Reuters Estimates.

"There were a lot of concerns going into the quarter, but it definitely looked better than expected, specifically on the ICD line. The impact of the recall was not quite as bad as feared," said Leerink Swann analyst Jason Wittes.

Medtronic's overall second-quarter revenue rose 2 percent to $3.12 billion from a year ago, but sales of its ICDs declined 16 percent to $639 million.

Medtronic is the largest maker of ICDs -- life-saving devices that can shock a racing heartbeat back to normal rhythm -- with about 50 percent of the market.

Quarterly revenue from the company's overall Cardiac Rhythm Disease Management business, which also includes pacemakers, fell 8 percent to $1.15 billion.

Sales of ICDs have declined since 2005 following a series of defibrillator recalls, mostly by Guidant Corp, later acquired by Boston Scientific Corp <BSX.N>, that slowed demand from cardiologists and their patients.

Medtronic said second-quarter revenue from spinal products rose 10 percent, and revenue from cardiovascular products including stents to treat clogged arteries increased 8 percent. Neurological device revenue rose 10 percent and diabetes revenue increased 16 percent.

Revenue growth is set to accelerate in the second half of the year due to several new product launches and availability of a replacement product for the Fidelis lead that the company is ramping up production on, Medtronic said.

"We do believe in the long run this will not have a big impact on Medtronic," Hawkins said in an interview. He predicted U.S. ICD market growth, which lately has been flat, should recover to the mid-single digits over time.

The company is counting on the launch of its Endeavor drug-eluting stent in the United States, new cervical disc implants, a next-generation neurostimulation device to treat pain, the Kyphon Inc. spinal acquisition and the resumption of sales of external defibrillators in its Physio-Control unit in the fourth quarter to boost growth.

It stopped shipping Physio-Control products earlier this year after problems with its quality systems were discovered. Medtronic said it still plans to spin off the unit eventually.

The Minneapolis-based medical device maker said it would not be surprised if Wall Street's consensus estimate for full-year 2008 earnings remained near $2.52 a share, plus or minus a few cents.

"The guidance looks to remain pretty much intact with current consensus, which is positive given concerns it would have to come down," Wittes said.

Shares of Medtronic were little changed in after-hours trading from a close of $45.25 Monday on the New York Stock Exchange. The stock is down 20 percent since the company announced its problems with the Fidelis lead.

(Additional reporting by Bill Berkrot in New York; Editing by Christian Wiessner)