The Little Canada-based medical device company experienced a decline in U.S. sales within its cardiac rhythm management division during the second quarter; moving that division’s manufacturing to Puerto Rico and Malaysia is expected to cut costs.
Medical device giant St. Jude Medical, Inc., plans to lay off 450 Swedish employees by the end of 2012 as it moves overseas manufacturing of its cardiac rhythm management (CRM) products—which experienced a sharp U.S. sales decline during the second quarter.
“What we see here in the market is that the U.S. CRM market fell into a pothole during the second quarter,” St. Jude President and CEO Daniel J. Starks said in Wednesday conference call with analysts.
Starks added that the U.S. CRM division accounts for 28 percent of Little Canada-based St. Jude’s overall revenue. But U.S. CRM sales totaled $401 million during the quarter that ended on July 2, down 9 percent from the same period last year; international CRM sales, however, jumped 12.6 percent to $392 million—and the division’s overall sales increased 1 percent.
St. Jude will transition its CRM manufacturing from Sweden to Puerto Rico and Malaysia—where it already has facilities and labor costs are lower—over the next 18 months, company spokeswoman Amy Jo Meyer confirmed on Thursday. She added that St. Jude will hire manufacturing employees in those two locations but not necessarily the same number as those now in Sweden or for the exact same positions.
Executive Vice President and Chief Financial Officer John Heinmiller described Puerto Rico and Malaysia as “more cost-advantaged locations.” Although the move is expected to cost the company $60 million to $80 million in pre-tax charges over the “next several quarters,” it will eventually generate $40 million to $50 million in annual savings, Heinmiller told analysts.
CRM products include both implantable cardioverter-defibrillator (ICD) and pacemaker product lines. Despite the recent challenges with St. Jude’s U.S. CRM sales, Starks is optimistic about future prospects.
“Although the CRM market contracted during the first quarter and may continue to contract on a year-over-year basis throughout the remainder of 2011, we continue to believe that, for us, the CRM market glass is half full, not half empty,” Starks told analysts. “We see $8.5 billion of global CRM market held by vulnerable competitors. We took share from both of our major competitors in the CRM market in 2010 and expect to do so again in 2011 and again in 2012.”
Fridley-based Medtronic and Natick, Massachusetts-based Boston Scientific—which has major operations in Minnesota—are both major rivals of St. Jude.
Overall for the second quarter, net sales jumped 10 percent to $1.45 billion, but profits dropped to $240.9 million, or 72 cents per share, from $254 million, or 77 cents per share, during the same period last year.
Due to the weakness in the U.S. CRM market, St. Jude reduced its guidance for the CRM division. It now expects CRM product sales to be in the range of $3.06 billion and $3.12 billion for fiscal 2011—down from the $3.17 billion to $3.25 billion that the company estimated during an April conference call.
Starks pointed out that St. Jude’s overall international sales jumped 23 percent in the quarter—totaling $769 million—and they now constitute the majority of the company’s business; total U.S. sales during the quarter totaled $678 million.
St. Jude is among Minnesota’s 20-largest public companies based on revenue, which totaled almost $5.2 billion in the fiscal year that ended in January.