St. Jude Medical, Inc. (STJ) today reported financial results for the third quarter of 2009 before the market opened. Earnings per share came in at 59 cents, compared to the Zacks Consensus Estimate of 58 cents and the year-ago earnings of 54 cents.

Sales

Net sales in the reported quarter increased 7% year over year to approximately $1.2 billion. Excluding an unfavorable foreign exchange translation (FX), net sales increased 10% year over year. Growth was witnessed across all the business segments. However, the company’s domestic revenues were below expectation primarily due to lack of purchase of cardiac rhythm management (CRM) devices by roughly 50 hospitals in the U.S.

In terms of business segments: CRM revenues increased 2% year over year to $690 million. Growth was led by higher demand for both implantable cardioverter defibrillator (ICD) and pacemaker. ICD revenues increased 2% year over year to $389 million. Pacemaker sales increased 1% year over year to $301 million.

Atrial Fibrillation revenues increased 16% year over year to $156 million. Neuromodulation revenues increased 31% year over year to $84 million. Cardiovascular sales increased 11% year over year to $230 million. Growth in this segment can be attributed to strong sales of vascular closure and heart valve products.

Margins

St. Jude witnessed a contraction in margins. Gross margin declined 110 basis points (bps) year over year to 73.6%. Selling, general and administrative expenses as a percentage of sales declined 20 bps year over year to 36.8%. Research and development expenses as a percentage of sales increased 20 bps year over year to 12.3%. Operating margin declined 470 bps year over year to 20.9%.

Effective tax rate in the quarter was approximately 23.6%, a decline of 530 bps year over year. However, a lower operating margin has offset the lower tax rate, which has ultimately resulted in a net margin decline of 260 bps year over year to 14.4%.

Balance Sheet

St. Jude’s cash and cash equivalents stood at approximately $798.3 million at the end of the reported quarter. The company ended the quarter with an outstanding debt of roughly $2.0 billion.

Outlook

St. Jude has provided earnings per share guidance for the fourth quarter and full fiscal 2009. For the fourth quarter, earnings per share are expected between 61 and 63 cents. For full fiscal 2009, earnings per share are expected between $2.41 and $2.43.

St. Jude is a leading medical devices manufacturer that designs, manufactures and distributes medical devices to treat cardiovascular and neurological conditions.

Presently, St. Jude Medical holds the #2 market position for ICDs and pacemakers behind Medtronic Inc. (MDT) but ahead of Boston Scientific Corporation (BSX). This segment is the company’s largest in terms of revenues. St. Jude also holds the #2 market position behind Medtronic in neuromodulation.
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