UPDATE 2-Medtronic profit rises, but key product sales disappoint

Feb 19 (Reuters) - Medtronic Inc reported higher quarterly earnings on Tuesday, but sales of key products used in heart and spinal procedures missed expectations, sending its shares down more than 3 percent.

The maker of implantable heart devices, insulin pumps and products used for spine surgery reiterated its outlook for the fiscal year, calling for diluted earnings per share of $3.66 to $3.70 on revenue growth of 3 percent to 4 percent.

Chief Executive Officer Omar Ishrak said on a conference call that while sales of implantable heart defibrillators, pacemakers and devices used in spinal surgery had weakened in the latest quarter, there are signs that these markets have begun to stabilize.

Medtronic said its net earnings increased to $988 million, or 97 cents per diluted share, in the third quarter ended on Jan. 25 from $935 million, or 88 cents per diluted share, a year earlier.

Excluding certain acquisition-related items and the impact of authoritative convertible debt guidance on interest expense, earnings were 93 cents per share. On that basis, analysts on average were expecting 91 cents.

JPMorgan analyst Michael Weinstein said the beat stemmed mainly from the extension of the research and development tax credit, which was not uniformly reflected in Wall Street models. It added 3 cents per share in the quarter.

Revenue rose 4 percent to $4.03 billion.

Sales in Medtronic's largest businesses - cardiac rhythm management and spine - slipped from year-earlier levels.

Sales of implantable heart defibrillators fell to $654 million from $674 million, while sales of pacemaker system declined to $459 million from $467 million. And sales of spinal products fell to $753 million from $784 million.

But sales of coronary heart stents rose to $445 million from $382 million. Diabetes sales increased to $377 million from $367 million.

Shares of Medtronic were off 3.1 percent at $45.64 in early trading on the New York Stock Exchange.