Shares of medical device maker Medtronic Inc. (NYSE: MDT) surged on Tuesday in an otherwise lousy market after the company said tighter cost controls and new demand for spinal implants helped it exceed Wall Street's expectations. Shares have been slipping, however, since Tuesday, from a high of $35.39 to $34.44 mid-morning Thursday.
For the quarter Medtronic earned $723 million, or 65 cents per share, on revenue of $3.49 billion.
After adjusting for in-process research and development charges of $72 million, or 6 cents per share, non-GAAP net earnings came in at $795 million, or 71 cents per share, an increase of 12% and 13%, respectively, from a year ago, and one penny ahead of Street estimates.
Chairman and CEO Bill Hawkins said that four of Medtronic's seven business units reported double-digit revenue growth in the quarter, excluding the impact of foreign currency, and that the company continues to focus on delivering meaningful operating leverage.
Medtronic has been focusing on improving operating efficiencies of late, and reported a reduction of $50 million in selling and administrative expenses for the quarter.
Medtronic did see deterioration in its largest business unit during the quarter. Its heart-pacing devices unit was hit by weaker-than-expected sales of pacemakers and defibrillators, and revenue fell 4% to $1.17 billion.
However, the company's spinal unit unexpectedly gained 3% in the quarter to reach $832 million in sales, as its purchase of Kyphon last year began to pay dividends. A Morgan Stanley (NYSE: MS) analyst said the performance of the spinal unit should ease "some fears of further share deterioration."
There were two business units that were the big stars of the quarter for Medtronic.
Cardiovascular surgery products, which sells catheters, angioplasty balloons and stents, which hold open arteries after they've been cleared of fatty plaque, had a 10% gain in revenue to $565 million.
Neuromodulation products, which include implantable drug delivery systems to control chronic pain, and neurostimulation systems for common movement disorders, and urologic and gastrointestinal disorders, had an 11% gain to $354 million.
Elsewhere, diabetes product revenue rose 7% to $277 million, and surgical products grew 6% to $207 million, while Physio-Control products fell 4% to $90 million.
Hawkins said that Medtronic's results underscore that the company is not dependent on any single business, product line or geography, that the balance sheet is well-capitalized with $3.9 billion in cash and investments, and that Medtronic continues to generate free cash flow.
Looking ahead, he says the focus will be on extending the company's market share leadership, investing for market growth and leveraging geographic expansion. In short, MDT is a terrific play on an aging population.
Jamie Dlugosch is a contributor to OptionsZone.com.
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