Medtronic's Stent Lament (Breakfast News) August 24, 1999


Tuesday, August 24, 1999

"When a managment with a reputation for brilliance tackles a business with a poor reputation for fundamental economics, it is the reputation of the business that stays intact."
-- Warren Buffett

Medtronic's Stent Lament

By Brian Graney (TMF Panic)

Interventional and implantable medical devices maker Medtronic (NYSE: MDT) turned in fiscal first quarter earnings of $0.42 per share last night, up from last year's $0.39 and in line with the First Call mean estimate. Revenue growth was strong for three of the company's four major business lines. The exception was the vascular products unit, which includes the firm's highly visible coronary stent business and the operations of late 1998 acquisition Arterial Vascular Engineering.

The company's main cardiac rhythm management business, which accounted for 53% of quarterly revenues, benefited from strong acceptance of new dual chamber implantable cardioverter defibrillators such as the Gem II DR. Medtronic is the dominant player in cardiac rhythm management, and sales of its pacemakers and its defibrillators are growing faster than the overall market. Pacemaker sales were up 7% in the period, while overall defibrillator sales rocketed 60%.

Meanwhile, sales at Medtronic's neurological and spinal products unit rose 33%, thanks to a greater than 40% rise in revenues from another one of last year's business additions, Sofamor Danek. Cardiac surgical products, the company's smallest business line representing just over 10% of total Q1 revenues, experienced 18% sales growth for the period.

However, the market's attention today will likely focus on the disappointing results from the vascular product line, which includes the highly competitive stent business. New product introductions are crucial in this area, and Medtronic's U.S. business is taking a beating as it tries to get its latest stent into surgeons' hands.

The firm has high hopes for its S670 stent, which should hit the U.S. late this year if all goes well. Introduced just two months ago in Europe, the S670 is reportedly already the top-selling stent in that market with a greater than 30% market share. Recreating that kind of success in the U.S. will be a tall order, but an important one for the company to fill if it wants to stay in the stent-obsessed market's good graces.

News to Go

Alan Greenspan and his buddies at the Federal Reserve will take center stage today as the Federal Open Market Committee meets to consider the economy. An announcement on short-term interest rate policy changes (or lack thereof) is expected to be released by the Fed at around 2:15 p.m. Eastern time.

After less than two years on the job, Rick Belluzzo has resigned as chairman and CEO of visual workstations and technical servers maker Silicon Graphics (NYSE: SGI). According to several news reports, Belluzzo is leaving SGI to head up the interactive operations unit of software giant Microsoft (Nasdaq: MSFT).

Fashion retailer The Limited (NYSE: LTD) has completed the spin-off of its young girl's clothing unit, Limited Too. Standard trading of shares of the new company, called Too, Inc., will begin today on the New York Stock Exchange under the ticker "TOO."

3D graphics chipsets maker 3Dfx Interactive (Nasdaq: TDFX) reported a Q2 loss of $0.50 per share, which includes amortization of goodwill and an in-process research and development write-off related to its recent merger with STB Systems. Analysts surveyed by Zacks were expecting a profit of $0.05 per share. Gross margins eroded in the period to 28% from 48% a year ago.

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