St. Jude Medical (NYSE:STJ) may have performed better than expected in the cardiac rhythm management business in the second quarter, but that doesn’t necessarily mean the company is confident about seeing a rosier picture around the corner.
The Minnesota medical device company reported Wednesday that revenue fell 2 percent to $1.41 billion from $1.46 billion in the same period a year ago. Profits meanwhile headed the opposite direction – they climbed 1.25 percent to $244 million from 241 million in the comparable period in 2011. Earnings per share ticked up to 78 center per diluted share from 72 cents in the second quarter of last year. Most notably, the company performed better than analysts expected in its cardiac rhythm management business.
Yet, despite the fact that St. Jude Medical’s CEO said that the company has been gaining market share in the challenging global cardiac rhythm management market, St. Jude’s stock fell Wednesday.
That’s because St. Jude Medical CEO Dan Starks’s statement about that market, the company’s largest by revenue, was troubling. Here’s a portion of his comments in response to David Roman, the Goldman Sachs analyst who questioned Starks about his confidence in the rate of recovery of the CRM market:
“As you and others know, the global CRM market has declined. This will be now the third year in a row (globally that the market has declined) – for us, it will be the second in a row where our revenue has declined even though we’ve gained share. So as you ask me for confidence and more or less a level of proof that the CRM market is near a point ofstabilization,I can’t give it to you. We have regularly been overly optimistic….
Because we have not been able to predict the bottom of the market here on a frequent basis, we are determined to be conservative in the outlook that we have expressed now….
I think what some people might have thought that we would be talking about the market having bottomed at the end of the second quarter and maybe hindsight will show that it did, but we are erring on the side of being conservative to say that we can’t say that we’ve seen the bottom yet, but we do expect the rate of decline to slow in the second half of this year.
As a result, St. Jude Medical cut its forecast. The company expects to garner adjusted earnings per share between$3.44 to $3.49 per share in 2012. That is down from$3.40 to $3.45 it estimated at the previous earnings call in April.
It remains to be seen whether other executives of competing medical device companies will echo Starks in their uncertainty about a tepid recovery of the CRM market starting early 2013. Some insight should come next week when Boston Scientific reports its second-quarter results on July 26.
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