Medtronic cuts estimated medical device tax impact in half

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Medical device maker Medtronic (NYSE:MDT) this week became the latest in a string of medtech giants who have pared back their expectations of the impact of the 2.3% medical device sales tax.

Medtronic chief financial officer Gary Ellis told investors during a conference call this morning that the medical device tax will likely cost the company around $20-$25 million for the 2013 fiscal year, about half what the company had previously projected.

The original $50 million estimate was calculated before the IRS released the final guidelines for the tax, Ellis said. The new rules protect medtech companies from paying the sales tax on existing inventories, meaning that there will be "a little bit of a slower ramp up on the device tax itself, just based on what the existing inventory levels that are out there for the various businesses," Ellis told investors.

The re-calculation puts Medtronic alongside fellow industry giants that have lowered their medtech estimates in recent weeks. Massachusetts rival Boston Scientific (NYSE:BSX) said earlier this month that its 2013 tax obligation will likely amount to around $75 million, down from prior estimates that but the tab closer to $100 million.

Orthopedics giant Zimmer Holdings (NYSE:ZMH) said as far back as October 2012 that the tax wouldn’t hit the company as hard as it had previously believed, similarly predicting a ramp-up over the course of 2013.

Medtronic released its lowered tax bill estimates alongside its 3rd-quarter financials, in which the company said profits were up 5.7% on sales growth of 2.8% for the 3 months ended Jan. 25. The company reported profits of $988 million, or 97¢ per share, on sales of $4.03 billion for the quarter. Adjusted to exclude 1-time items, earnings per share were 93¢, 2¢ ahead of expectations on The Street.

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