When a huge part of your business involves making sure that hearts beat in proper rhythm, I suppose it's a good sign that you show great timing at the corporate level. Not only did St. Jude (NYSE:STJ) announce its acquisition of Advanced Neuromodulation Systems (NASDAQ:ANSI) on Monday but also the company released very strong earnings.
Total revenue climbed 28% in the quarter, continuing a streak of 20% or better growth for going on three years now. The company also continued to exact significant margin leverage from this sales growth. Gross margin climbed about 360 basis points to nearly 73%, and operating margin improved by about 760 points to more than 28%. At the bottom line, net income grew more than 84% from last year's level.
As has been the case for a while now, growth was led by the cardiac rhythm management business, specifically implantable cardioverter defibrillators, or ICDs. ICD sales continued to rocket ahead, growing 68% in this quarter versus an industrywide growth rate that is somewhere in the mid- to high 20s. Management said the company added another 2% to 3% of incremental market share on a sequential basis and now holds close to 20% of the market for ICDs. Although we won't know for certain until Medtronic (NYSE:MDT) reports earnings, I'd suspect that Medtronic is more or less holding its own, while St. Jude is stripping share away from Guidant (NYSE:GDT).
Other businesses did well in their own right. Pacemaker revenue grew 6%, a rate that's probably suggesting some share growth as well. Revenues tied to atrial fibrillation grew 66%, and cardiology sales were up 12%. Of possible interest to Kensey Nash (NASDAQ:KNSY) shareholders, since Kensey Nash and St. Jude are partners on the product, St. Jude reported that vascular sealing sales rose 11%. Only cardiac surgery fell off the pace, with sales down 3%, led by a 2% decline in heart valve revenue.
In a more macro perspective, analysts keep raising the bar for St. Jude, and the company continues to surpass it. This hasn't gone unnoticed in the markets, and the stock carries a pretty robust valuation as a result. Still, how many opportunities do you find where a company can produce double-digit return on assets, 20%-plus top-line growth, and operating margins of close to 30%? Although the company is certainly vulnerable to any pricing adjustments (akin to what orthopedics companies may see), there's no question that this stock is keeping the beat for now.
For more on the health-care sector:
- Kensey Nash Needs to Kick It Up
- Hey, Jude! Party Hearty
- Medtronic Keeps the Beat
- Orthopedic Sector Stumbles
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
