CHICAGO – Heart device maker Guidant Corp. (GDT) posted lower quarterly earnings on Thursday, hurt by recent recalls of some of its key products, but said its planned acquisition by Johnson & Johnson was still on track.
Guidant has recalled several models of its implantable cardioverter defibrillators (search) (ICDs) in recent weeks because of malfunctions.
The Indianapolis-based company late last year agreed to be acquired by J&J (JNJ) for $25.4 billion, but the recalls have raised fears that the deal could be renegotiated or delayed.
In its earnings report, Guidant said it had found a way to repair a malfunctioning switch in a top-selling line of pacemaker and defibrillator combination devices. It said the devices could be back on the market soon.
Management also stressed it was working with J&J to close the merger on time in the current quarter.
"Those two statements gave some people a little more comfort that there won't be a reworking of the deal," said Susquehanna Financial Group analyst Mark Landy.
Guidant, whose shares were up 2.5 percent, said second-quarter net earnings fell to $107.3 million, or 32 cents a share, from $126.5 million, or 39 cents a share, a year earlier.
It recorded a second-quarter charge of $113.1 million, or 26 cents a share after tax, for the recalls.
Excluding charges for the recall and other special items, the company earned 58 cents a share, well short of the average forecast of 65 cents among analysts polled by Reuters Estimates.
Net sales rose to $974.1 million, up from $938.8 million a year earlier but short of the $990.43 million expected by analysts.
"The sales erosion is a little worse than would have been expected," said Eli Kammerman, analyst with independent research firm Cathay Financial.
Worldwide ICD revenue rose 3 percent to $470 million.
The company also recorded charges of 8 cents a share for accelerated vesting of stock options ahead of the merger with J&J, and 3 cents a share for certain research and development costs. The charges were partially offset by an income tax gain of 9 cents a share.
Guidant Chief Executive Ronald Dollens said, "We continue working with Johnson & Johnson management and are making timely progress toward the closing of the merger in the current quarter."
Some analyst, however, were skeptical. "We continue to believe that the GDT/JNJ merger will be completed, but that it will be delayed and that there is a high probability of a renegotiated price," said Harris Nesbitt analyst Joanne Wuensch.
Guidant said it had found a way to solve a switch component failure in its Contak Renewal 3 and 4 pacemaker-defibrillator devices. It said it had requested approval from the Food and Drug Administration to resume selling the devices.
"It sounds very probable that they will be back on the U.S. market with the CRT-D devices by the end of September, possibly by the end of August," Kammerman said.
J.P. Morgan analyst Michael Weinstein said rival ICD maker St. Jude Medical Inc., which reported better-than-expected earnings on Wednesday, appeared to be benefiting most from the Guidant recall, with Medtronic Inc. also picking up some market share.
Guidant shares were up $1.70 to $69.40 on the New York Stock Exchange.