Hopeful news: Target, Medtronic report strong earnings

Several reports today offer further evidence the economic clouds in Minnesota are slowly parting.

Two of Minnesota powerhouse companies--Medtronic and Target--reported strong quarterly earnings today. Target's stock price fell about one percent today. Medtronic's stock was off about two percent.

They both said they see signs the economy is starting to rebound, but their profits don't signal a strong turn-around in the U.S. economy--not yet at least.

MEDTRONIC'S OVERSEAS SALES BOOST BOTTOM LINE

Medtronic's quarterly profits rose 20 percent, $133 million to $831 million. But the U.S. market wasn't much of a help; overseas sales played a big role in the surge.

Medtronic's domestic sales rose only about three percent. Meanwhile, international sales of pacemakers and other medical devices jumped 22 percent. And overseas sales accounted for 42 percent of Medtronic's revenue in the quarter.

CEO Bill Hawkins said most foreign markets performed very well.

"China, Japan, Western Europe, Middle East and Africa...all grew double-digits," he said.

Long-term efforts to rein in spending are also paying off for Medtronic.

Chief Financial Officer Gary Ellis noted the company has been aggressively cutting costs for years. He says the effort was a response to growing competition that was undermining Medtronic's ability to boost prices.

"We saw a couple of years ago that we would see increasing pricing pressures and we had a program underway to take $1 billion in costs out of our product," Ellis said. "And that was when we still--two, three years ago--had market-leading gross margins."

TARGET: NEARLY $1B IN EARNINGS

Over at Target, it was a similar story. The retailer said its profits rose because of tight cost and inventory controls and better than expected holiday sales. The Minneapolis-based retailer earned $936 million in the quarter that ended January 30. That was up about 50 percent--or $330 million--from the same quarter a year before.

Most of the profit increase is the result of a big drop in expenses for Target's credit card business.

Target CEO Gregg Steinhafel said the retailer is well-attuned to the more frugal mindset of consumers. He reiterated Target's vow to compete with Walmart on price.

Steinhafel said consumers are shopping Target somewhat more, but he said most shoppers are still worried about the economy.

"We expect economic recovery to continue in 2010, but we expect progress to remain slow, as consumers face historically high rates of unemployment and lack of access to consumer credit," he said.

The Target and Medtronic earnings continue a trend of Minnesota companies posting strong quarterly increases in earnings.

Consider the performance of some 30 publicly-held companies that are major employers in the state. Those companies, including 3M, U.S. Bank and Ecolab, have posted a combined profit increase of about 30 percent in their most recent quarters. Of course, they're 20 percent behind their profits back in 2008.

Still, the direction is now upward.

Dave Heupel, an analyst with Thrivent Financial for Lutherans, says it'll take several more quarters of strong earnings to seriously improve people's sentiments about the economy.

"This isn't exactly 'Happy Days Are Here Again.' But this is a far cry from what it was a year- and-change ago," he said. "It's off the bottom, but it's not an upward trajectory that there's a lot of confidence in yet."

Heupel expects the economy will eventually rev up. And when it does he believes Minnesota, with its mix of strong companies across many industries, will do well.

"Everyone, I think, is struggling still, but managing it fairly well," he said. "Once you get that resurgence in demand--both industrial, cyclical and consumer--I think Minnesota companies are probably as prone to benefit as anyone else."

And when Minnesota companies do better, Minnesotans should, too.

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