UPDATE 3-Medtronic heart device sales stabilize, but disappoint
* Oper profit 85 cents/share, in line with Street view
* Heart defibrillator sales outpace industry but still weak
* FDA posts warning letter over plant violations
* Shares dip 0.2 pct in afternoon
By Debra Sherman
Aug 21 (Reuters) - Medtronic Inc said sales of its heart defibrillators outpaced the global industry but remained weak, disappointing some investors who hoped the company would win more business after a product recall from rival St. Jude Medical Inc.
Medtronic, the world's largest stand-alone maker of medical devices, said the global market for implantable defibrillators, known as ICDs, was beginning to stabilize after several sluggish years due to a weak economy and heightened scrutiny over their use. The devices, which correct irregular heart rhythms, are one of its biggest revenue-generators.
Chief Executive Omar Ishrak estimated the total worldwide market for the devices fell 4 percent in the latest quarter. Medtronic performed slightly better, with company defibrillator sales down 3 percent.
"We're pretty satisfied with what we're doing in ICDs. Our share in Europe is at a three-year high," Ishrak said in an interview.
"We are gaining share. We can't say whether it's because of (St. Jude's issues). And we feel good about the fact that the market is stabilizing," he said.
Medtronic shares were down 0.2 percent at $41.35 on Tuesday afternoon. Earlier in the day the shares rose to $41.75, the highest level since mid-2011.
Danielle Antalffy, an analyst with Leerink Swann, attributed the modest stock decline to disappointment that the company did not benefit more from the problems that rival St. Jude has had with its defibrillator leads - the wires that carry electricity from the device to the heart.
"We are seeing signs of improvement. Maybe the improvement wasn't quite as good as people had hoped," said Debbie Wang, an analyst with Morningstar.
In the United States, Ishrak said that the ratio of the number of leads sold to the number of defibrillators sold has rebounded to the levels before the company recalled its Fidelis lead in 2009. The ratio is one indicator of doctors' willingness to use Medtronic leads with Medtronic's defibrillators.
FDA WARNING LETTER
Separately, the U.S. Food and Drug Administration said on Tuesday it had sent a warning letter to Medtronic in July.
The letter said that some neurological devices manufactured at its Minnesota plant violated manufacturing and quality regulations, which could lead to patient injuries, and that the company needs to take immediate action to correct the problems.
Ishrak said he does not expect that corrections at the plant will have a material financial impact and that the company would work as quickly as possible to fix the problems.
Medtronic, which also makes heart pacemakers, insulin pumps and products used for spinal procedures, said net earnings for its fiscal first quarter ended July 27 rose to $864 million, or 83 cents per share, from $821 million, or 77 cents per share, in the year-ago period.
Excluding one-time items, earnings were 85 cents per share, matching the average Wall Street estimate, according to a survey by Thomson Reuters I/B/E/S.
Revenue increased to $4.01 billion from $3.95 billion.
The company left its full-year profit forecast unchanged at $3.62 to $3.70 per share. "We want to be very conservative," Ishrak said.
In the latest quarter, emerging-market revenue made up 11 percent of Medtronic's overall sales in the quarter, well below the company's goal of 20 percent. Ishrak called the result a disappointment.
"It was more execution than the market," he said, adding that emerging market governments continue to invest in healthcare, and Medtronic's 20 percent goal remains intact.
Revenue from its cardiac rhythm management unit fell 5 percent to $1.19 billion as hospitals purchased fewer devices, instead using those already on their shelves.
Revenue from its Restorative Therapies Group, including its spine, neuromodulation, diabetes and surgical technologies businesses, rose 5 percent to $1.89 billion.
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