--Medtronic earnings rise, sales edge higher amid pressure from currency rates

--Company highlights signs of stability in key markets, despite continued sales declines for some products

--Full-year guidance unchanged as executives remain cautious

(Updates throughout with details on results and outlook, company comments.)

 
   By Jon Kamp

Medtronic Inc. (MDT) said Tuesday that its fiscal first-quarter earnings rose 5.2% as revenue edged up, and the medical-device maker also cited signs of stability in sluggish heart and spinal-device markets.

Officials at the Minneapolis-based company were still cautious about the path ahead, noting continued vulnerability in the global economy, plus a longer trend of volatility in key device markets. Medtronic has been dealing with slow sales conditions for some time for products like implantable defibrillators.

"Although we were encouraged by [first-quarter] results, we recognized that we need to deliver this kind of performance consistently over the long term," Omar Ishrak, Medtronic's chief executive, said on a conference call with analysts.

Medtronic shares recently traded down 17 cents to $41.28, although they are trading around the highest levels since mid-2011. The company backed its guidance for the fiscal year running through next April, even though its sales growth for the latest quarter exceeded its target for the full year.

Company officials stressed that they would remain cautious until they see more signs that device markets remain stable. "We're hopeful that we're being conservative," Chief Financial Officer Gary Ellis said on the call.

For the quarter ended July 27, Medtronic reported a profit of $864 million, or 83 cents a share, up from $821 million, or 77 cents a share, a year earlier. Excluding convertible-debt and acquisition-related impacts, per-share earnings rose to 85 cents from 79 cents. Analysts surveyed by Thomson Reuters had expected 85 cents.

Revenue also just about matched expectations, rising 1.6% to $4.01 billion, or 5% excluding the impact of unfavorable currency rates.

Mr. Ishrak expressed some disappointment with Medtronic's sales growth in emerging markets, which at 14%, excluding currency impacts, was below the company's long-term goal of 20%. But the company still maintains that target for the fiscal year and expects to eventually hit 20% growth consistently on a quarterly basis, the CEO said.

Sales of implantable defibrillators, known as ICDs, slipped 3.2% to $675 million, but were flat excluding the currency impact. Sales of the devices, which shock hearts to stop potentially deadly rhythm distortions, have long been under pressure from government scrutiny of implant practices in the U.S., austerity measures in Europe and general economic turmoil.

But Medtronic noted some positive signs in the U.S. market, which the company said showed "continued stabilization." While the company's domestic ICD sales declined about 3% in the recent quarter, this was better than an estimated 4% decline for the market, Mr. Ishrak noted. Medtronic also believes the rate of implants is actually growing slightly, and that revenue has been held back by hospitals carefully managing inventory.

Medtronic is the biggest company in the $10 billion market for heart-rhythm devices it shares with St. Jude Medical Inc. (STJ) and Boston Scientific Corp. (BSX). That market also includes pacemakers, where Medtronic saw weaker sales that it mainly pegged to declining product prices.

Sales in Medtronic's spinal business slipped nearly 5% amid a sharp 19% decline in a category that mainly includes the company's troubled "Infuse" bone-growth product. A medical-journal article last year raised questions about Infuse's safety and effectiveness, pressuring sales. The company has been awaiting data from an independent Yale University assessment to help sort out Infuse issues, and officials on Tuesday said they expect Yale's results in the coming months.

Beyond Infuse, Medtronic said its core spinal-device business has also shown signs of stability. U.S. results for the core-spinal business were flat, matching overall market results. The spinal market has faced pressure from issues like price declines and insurers pushing back against certain procedures.

"Our business seems to be turning the corner as our new products and procedures gained critical mass," Mr. Ishrak said on the conference call.

Elsewhere, Medtronic said business for drug-coated stents--tiny devices used to prop open heart arteries--benefited from a new device released in the U.S. earlier this year that has posted "significant share gains" over competitors.

The company also disclosed Tuesday that its neuromodulation business recently received a Food and Drug Administration warning letter related mainly to issues with complaint-handling processes. The company is working with the FDA and doesn't anticipate a material impact on financial results, Mr. Ellis said.

(Tess Stynes contributed to this report.)

-Write to Jon Kamp at jon.kamp@dowjones.com

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