Sam, news from WSJ regarding Medical device manuf. Chk. it out.
Dow Jones Newswires -- October 10, 1997
Medical-Device Cos.' 3Q Results Will Be Mixed Bag
By LOUIS HAU
Dow Jones Newswires
NEW YORK -- The third-quarter earnings of major
medical-device manufacturers won't be anything to write
home about.
Some companies, such as Guidant Corp. (GDT) and
Johnson & Johnson (JNJ), are expected to come through
with solid numbers. But prominent names like Boston
Scientific Corp. (BSX) and St. Jude Medical Inc. (STJ) have
already warned Wall Street to expect disappointing results in
the second half of 1997.
International sales growth is still being dampened by the
strong dollar and the tightfisted health-care spending
policies of European countries, which are striving to meet
the budgetary requirements for the European monetary
union.
Cardiac rhythm management, a major area of concentration
for some of the sector's biggest players, continues to be
distinguished by sluggish pacemaker sales after a two-year
period of double-digit growth that lasted through mid-1996,
said Piper Jaffray Inc. analyst Arch Smith.
This has important implications for Medtronic Inc. (MDT)
and St. Jude, each of which derives roughly half its revenue
from pacemaker sales, he said.
The current stars of cardiac rhythm are implantable cardiac
defibrillators, or ICDs. Worldwide ICD sales should rise
25% in 1997 to $1 billion, Smith said. Recent high-profile
clinical studies have suggested that ICDs could be used to
treat a broader variety of heart ailments than before.
"You get the sense that the new indications could create or at
least maintain rapid growth," Smith said.
Guidant should report net income of 33 cents a share,
compared with 29 cents in the year-ago period, said J.P.
Morgan Securities Inc. analyst Michael Weinstein.
During the third quarter, the Indianapolis company
launched two important new products in the U.S.: the
Ventak AV, a dual-chamber ICD that corrects arrhythmias
in both the upper and lower chambers of the heart, and the
Multi-Link coronary stent, which should give Johnson &
Johnson's dominant Palmaz-Schatz stent a run for its money.
After posting a respectable 9% to 10% gain in the third
quarter, Guidant's sales growth should accelerate
dramatically thereafter, thanks mostly to a revived vascular
intervention business led by the Multi-Link, Weinstein said.
He projects total sales will grow in the mid- to high teens in
the fourth quarter and about 25% in 1998.
"This is the last quarter of pre-stent-type growth," he said.
Medtronic, whose second fiscal quarter ends Oct. 31, should
report earnings of 64 cents a share, compared with 54 cents
in the year-ago period, Piper Jaffray's Smith said.
The Minneapolis company's revenues should be up about
7%, featuring lackluster pacemaker sales and a strong
performance by its ICD line, including the Micro Jewel II,
he said.
Medtronic is expecting imminent Food and Drug
Administration approval of its Kappa 400 family of
pacemakers. While this new addition should help pacemaker
sales, it "won't take the market by storm" the way the
company's upcoming Kappa 700 line will, Piper Jaffray's
Smith said.
The Kappa 700 series, which is expected to be on the U.S.
market in early 1999, automatically sets the appropriate
parameters needed for a patient's pacing therapy.
Medtronic's Wiktor coronary stent, which the FDA
approved in June, should post strong sales in October,
Smith said. He added, however, that the device's sales
growth should plateau quickly with the entry into the
market of competing devices. The Wiktor has historically
fared poorly in competitive markets, with its market share
typically trailing off to about 10%, Smith said.
Morgan Stanley Dean Witter analyst Glenn Reicin expects
Johnson & Johnson to report earnings of 64 cents a share,
compared with 56 cents a year ago, and a 4% to 5% increase
in worldwide revenue.
The New Brunswick, N.J., company continues to see slower
increases in selling, general and administrative expenses and
sharper improvements in gross margins, he said.
Johnson & Johnson's pharmaceutical business, the
company's fastest-growing segment, should record an 8%
increase in revenue, Reicin said. The company's professional
segment, which includes medical products and surgical
equipment, should post about a 6% sales gain, while
consumer-products sales should be up 4% worldwide and in
the high single digits domestically, he said.
Boston Scientific should report net income of 45 cents a
share, compared with 36 cents in the year-ago period, J.P.
Morgan's Weinstein said.
His estimate is in line with the Natick, Mass., company's
warning last month that earnings would be unchanged or up
only modestly from the the second quarter due to a
greater-than-expected seasonal slowdown in procedures
worldwide, softness in its European business and the
continuing impact of the strong dollar.
Boston Scientific pre-announced third-quarter sales
Wednesday of $475 million, compared with $396 million in
the year-ago period. The company is "still experiencing solid
sales growth but not up to expectations," Weinstein said.
Smith expects St. Jude to report net income of 21 cents a
share, down sharply from 33 cents a year ago, which reflects
the St. Paul, Minn., company's warning that third-quarter
per share earnings would be in the low 20s.
St. Jude's Pacesetter unit continues to struggle with its
integration of Ventritex Inc. and Telectronics Pacing
Systems, which remains about one quarter behind schedule,
Smith said.
While St. Jude has leading-edge products such as its
Contour and Angstrom ICDs, the company's
slower-than-expected progress in training its sales force has
hampered sales, he said.
U.S. Surgical Corp. (USS) should report earnings of 44
cents a share, compared with 39 cents a year ago, Morgan
Stanley's Reicin said.
The Norwalk, Conn., company continues to experience
pressure on its core business of laparoscopy and surgical
staples from Johnson & Johnson.
Most of U.S. Surgical's growth should come from sutures,
spinal-fusion cages and possibly also the Advanced Breast
Biopsy Instrumentation, or ABBI, system, Reicin said. He
pointed out that the ABBI system, which was launched in
early 1996, will be up against a tougher year-ago
comparison than in recent quarters.
The company was active on the acquisition front in
September, buying up coronary-stent maker Progressive
Angioplasty Systems, ultrasound companies NeoVision
Corp. and DRS Medical System and the spinal-product line
from Smith & Nephew Inc. Most of the charges related to
those purchases will be incurred in the fourth quarter,
Reicin said.
Baxter International Inc. (BAX) should report net income of
57 cents a share, compared with 50 cents in the year-ago
period, said Bear Stearns & Co. analyst Rick Wise.
The Deerfield, Ill., company, which generates about
two-thirds of its earnings in international markets, will
experience a sequentially greater foreign-currency impact
than in the second quarter, Wise said.
When Baxter reports its earnings later this month, Wall
Street observers will be looking for an update on the
company's progress in integrating its Immuno International
AG acquisition, Wise said.
Stryker Corp. (SYK) should report net income of 30 cents a
share, compared with 25 cents during the same period last
year, meeting the company's stated goal of generating 20%
earnings growth, said Donaldson Lufkin & Jenrette
Securities Corp. analyst Steven Halper.
The Kalamazoo, Mich., company should see sales growth in
the low teens for its orthopedic implants, in the midteens for
its powered surgical instruments and single-digit growth in
hospital beds, Halper said. Stryker's outpatient rehabilitation
business should see a 15% to 20% increase in revenue due
almost wholly to recent startup operations and acquisitions,
he said. Same-facility rehab revenue should be flat, he said.
Becton Dickinson & Co. (BDX) should report fourth fiscal
quarter net income of 68 cents, compared with 66 cents in
the year-ago period, Reicin said.
The Franklin Lakes, N.J., company's earnings growth in the
quarter is relatively constrained because it is trying to defer
earnings to the first quarter, he said. Becton is attempting to
move away from a historical pattern of reporting
disproportionately high earnings in the fourth quarter due to
a year-end boost in sales.
C.R. Bard Inc. (BCR) should report earnings of 47 cents to
48 cents a share, compared with 43 cents a year ago, Wise
said.
The Murray Hill, N.J., company is in the early stages of
implementing a global plan to increase productivity, expand
margins and lower sales, general and administrative
expenses, he said.
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