St. Jude Medical, Inc. ( ), a leading medical device manufacturer that designs, manufactures and distributes medical devices to treat cardiovascular and neurological conditions, reported financial results for the second quarter of 2009. EPS was $0.63, an increase of 15% y/y and in line with the street estimates. However, the company’s share fell roughly 9% at the close of the trading yesterday on concerns regarding weakness in the company’s largest revenue generating segment, cardiac rhythm management.?

Net sales in the quarter were $1,184 million, an increase of 4% y/y. The company met with foreign currency (FX) headwinds in the quarter. Excluding FX, net sales increased 10% y/y. Net sales in terms of business segments were as follows:?

Cardiac Rhythm Management (CRM): $704 million (?1% y/y)?
Atrial Fibrillation: $156 million (?16% y/y)?
Neuromodulation: $81 million (?33% y/y)
Cardiovascular: $243 million (?7% y/y)?

Cardiac Rhythm Management sales declined due to lower sales of ICDs and pacemakers with both declining 1% y/y to $400 million and $304 million, respectively. The decline in revenue can be attributed to an unfavorable foreign currency. Management estimates that they have gained roughly 50 to 100 basis points (bps) of global CRM market share in the first half of 2009 which entrances competition from Boston Scientific Corporation ( ) and Medtronic ( ).?

Gross margin in the quarter declined 50 bps y/y to 74.2%. Here too, an unfavorable foreign exchange played a dampener and offsets the impact of productivity improvements. However, lower operating expenses as a percentage of net sales, helped the operating margin to decline only by 10 bps y/y to 25.7%. This was offset by lower non-operating expenses that ultimately resulted in net margin of 18.5%, an increase of 150 bps y/y.?

Management has provided guidance for the third quarter and full fiscal year 2009. For the full year 2009, management expects net sales in between $4.715 billion and $4.850 billion. EPS is expected to be in between $2.48 and $2.54. For the third quarter, EPS is expected to be in the range of $0.61 to $0.63.?

In the quarter, St. Jude’s Board of Directors authorized the repurchase of up to $500 million of the company’s common stock which is expected to occur in the second half of the year.?

St. Jude ended the quarter with a cash balance of roughly $487 million. The company’s outstanding debt stood at $1,286 million due to increased borrowings in the U.S. and Japan in the past few months.?

We continue to rate St. Jude a ‘Buy’.