(Updates throughout with details on quarter, company and analyst comments, share price.)
By Jon Kamp
Of DOW JONES NEWSWIRES
St. Jude Medical Inc.'s (STJ) third-quarter profit fell 9.6% amid charges tied to job cuts and as U.S. hospitals refrained from buying heart-rhythm devices or pushed for price cuts St. Jude wouldn't accept, slowing sales growth.
The company lowered its full-year financial guidance to account for these issues, but also said its longer-term outlook hasn't changed, and neither have expectations for the $11 billion heart-rhythm market. That market includes implantable pacemakers and defibrillators.
St. Jude already issued preliminary results on Oct. 6, and through Tuesday its shares had declined 13.3% since that release. They regained some ground following the official report on Wednesday and were recently up 2.4% to $33.97
While third-quarter international sales grew 15% excluding currency, U.S. sales rose just 5.4% and were weaker than St. Jude expected. About 50 U.S. hospitals either didn't make normal quarter-end purchases of heart-rhythm devices or "wanted an unusual price discount," said Daniel J. Starks, St. Jude's chairman and chief executive.
"In those circumstances, the right thing for us to do for our business was to walk away," he said on a conference call.
He stressed that these are customers the company didn't lose, and that the issue involves timing of orders and not lost market share. "I think we will see that business return over a period of time," Starks said.
He also said St. Jude continues to expect mid single-digit growth in the market for heart-rhythm devices. Boston Scientific Corp. (BSX) lowered its growth outlook for that market on Tuesday, although the companies have similar forecasts. The market's biggest player - Medtronic Inc. (MDT) - is on a fiscal calendar and reports for its most recent quarter next month.
St. Jude's third-quarter earnings fell to $166.9 million, or 48 cents a share, from $184.7 million, or 53 cents, a year earlier. Excluding an 11 cent charge mainly for job-cut costs in the latest quarter and a 1-cent tax-related gain a year ago, earnings rose to 59 cents a share from 54 cents.
The company's estimate two weeks ago was 57 cents to 58 cents.
As reported, St. Jude recently terminated about 250 workers in its manufacturing divisions following cuts of about 200 U.S. sales, service and support jobs. The company, which has roughly 15,000 employees worldwide, will make sure that spending doesn't get ahead of sales growth, Starks said.
While St. Jude may cut more jobs if needed, it has made the vast majority of planned changes, Chief Financial Officer John C. Heinmiller said in an interview. "The point is that we're passionate about operating discipline," he said.
Sales came in at $1.16 billion, up 7%, as St. Jude disclosed two weeks ago. Unfavorable currency rates reduced sales by about $29 million.
Sales at the heart-rhythm unit rose 2% to $690 million, or a 5% rise excluding currency. St. Jude had said results would be below its July forecast of $700 million to $730 million.
Excluding foreign exchange, defibrillator and pacemaker sales rose 5% and 4%, respectively.
Sales of devices to treat the rhythm disorder atrial fibrillation, rose 16% to $156 million, or 19% excluding currency.
Looking ahead, St. Jude now expects 2009 earnings of $2.41 to $2.43 a share, excluding the third-quarter charges, down from its prior view of $2.48 to $2.54. The full-year sales outlook was lowered to a range of $4.62 billion to $4.69 billion.
At the same time, Starks said St. Jude expects double-digit sales growth next year excluding foreign currency, and that the company continues to target at least 15% growth in earnings per share in 2010 and beyond.
For the fourth quarter, St. Jude projected earnings of 61 cents to 63 cents a share. Even after adjusting for one fewer week of selling days than St. Jude had in the fourth quarter last year, guidance still looks conservative, JPMorgan analyst Michael Weinstein said.
After not predicting third-quarter problems, St. Jude is playing it safe.
"If we err on our guidance, we'll err on the side of under promising and over delivering," Starks said.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com
(Mike Barris contributed to this report.)