Medtronic stock rises after positive earnings report

Medtronic earned $723 million in the third quarter. Excluding one-time expenses, profits rose 12 percent, beating Wall Street estimates. Sales mostly matched investors' expectations, which had been falling in anticipation of a tough quarter.

Medtronic did well with its stent and pain management products in the third quarter. Sales of those products helped make up for declines in Medtronic's cardiac rhythm management business, which suffered due to a product recall of a product called the Sprint Fidelis. The Fidelis is used in conjunction with defibrillators-- implantable devices used to treat irregular heartbeats.

Medtronic's chief executive Bill Hawkins addressed the company's resulting loss of market share on a conference call.

"We had a setback a year and half ago with Fidelis, but we are back on the offense," Hawkins said. "We feel very good about our product portfolio and we are in a mode of going back and stabilizing and gaining share."

Hawkins said looking ahead, the economic downturn could hurt product lines tied to elective surgeries. Hospital industry officials have said patients are doing without elective procedures to avoid incurring the out-of-pocket costs. Hawkins said some of Medtronic's spinal products, are subject to those pressures.

"I do think that spine could be somewhat vulnerable, as patients will maybe endure more pain to put off having a surgical procedure that takes them out of work or puts them at risk of their job," Hawkins said. "And one comment that I've heard from talking to hospital CEOs is that their whole muscle skeletal sort of business has been down. And spine is sort of figured into that a little bit."

Hawkins said Medtronic's surgical technology and diabetes related products could also suffer due to declines in elective surgeries.

"Given Medtronic's size and breadth, they'll feel the impact, but it will feel muted compared to someone who doesn't have the diversity Medtronic does," he said.

David Heupel is a portfolio manager at Thrivent Financial for Lutherans. He said he's not too worried about the economic trends that could affect Medtronic.

"The economy doesn't help anyone in health care, but on a relative basis it's not as negative for the pure discretionary type things we see in other parts of the economy," Heupel said.

But Heupel would like to see Medtronic respond to the recession by paring down its workforce. In the past couple years, Medtronic has sliced a few thousand jobs.

"If there's an area where we could see some continued positive news it'll be on the margin side," Heupel said. "We think Medtronic is an operation that could get much leaner and meaner with regard to staff and corporate overhead, and I think it's something they're focused on and will continue to try to deliver, particularly in this environment, where you're not going to get a lot of sales growth."

With respect to Medtronic's third quarter performance, though, Heupel said the earnings report was solid and not surprising. But Heupel said Medtronic's outlook for the rest of the fiscal year was a little more upbeat than what analysts expected.

The company scaled back its outlook somewhat but still projects double-digit growth in earnings per share. And, Heupel said, investors cheered that news by sending the stock price up.

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