Medtronic Inc., which is preparing to complete a $43 billion merger with Covidien PLC, said its revenue increased 4.1 percent in the quarter ended in October, even as competitive pressures weighed on sales of two important product lines.
The merger, combining two of the world’s largest surgical-implant and hospital-supply companies, remains on schedule to close in early 2015, chief executive Omar Ishrak said on a conference call Tuesday with analysts. The companies plan to hold a special meeting in January to seek shareholder approval of the merger.
Medtronic’s planning teams are working to ensure the company is able to reach its goal of reducing costs by a minimum of $850 million annually, before taxes, by the end of its fiscal year 2018, Ishrak said
The Fridley-based company is looking to reduce costs by eliminating duplicate facilities, “administrative redundancies and other back-office functions, ” Ishrak said.
Medtronic reported earnings of $828 million for the quarter ended Oct. 24, down 8.2 percent from $902 million a year earlier. Earnings per share were 83 cents, down 6.7 percent from 89 cents a year ago. Profit was hurt by a $100 million donation to the company’s nonprofit charity organization, the Medtronic Foundation, and $61 million in costs related to the Covidien acquisition.
Excluding these charges, per-share earnings were 96 cents, compared with 91 cents a year earlier.
Revenue rose 4.1 percent to $4.37 billion from $4.19 billion a year earlier on the strength of sales growth in the company’s pacemakers and structural heart products.
Sales of Medtronic’s implanted cardiac defibrillators, or ICDs, fell 6 percent to $670 million, down from $713 million a year earlier. Analysts said sales were hurt by competitive pressure from Boston Scientific and St. Jude Medical, rivals that have increased their market share with new product launches. Ishrak said the company continues to face lower selling prices for its devices.
Shares of Medtronic rose 4.7 percent to $71.47.
Medtronic received U.S. regulatory approval in August for a new type of defibrillator that it says reduces side effects, and which analysts expect will help the company better compete against rivals.
“The only way you mitigate that pricing pressure is to keep coming out with new products and new features that people are willing to pay for from a value perspective,” Medtronic Chief Financial Officer Gary Ellis said in an interview.
Medtronic’s plan to buy Covidien, based in Dublin, has drawn scrutiny over a tax tactic criticized by U.S. government officials. The acquisition plan involves Medtronic reincorporating to Ireland, which would lighten the company’s tax burden.
