St. Jude Medical Inc warned Wall Street that U.S. health regulators might issue a warning letter about one of its factories in California as it reported another weak quarterly performance and reeled in its outlook.

St. Jude shares fell 6.1 percent to $40.30 in afternoon trading on the New York Stock Exchange.

During a conference call with analysts, Chief Executive Officer Dan Starks said St. Jude might receive a warning letter from the U.S. Food and Drug Administration about its Sylmar, California, manufacturing plant, where it makes cardiac rhythm management products.

"It's a risk, and don't be shocked if that risk is realized," Starks said, adding that the company wanted to communicate this possibility to avoid surprising investors if it receives the warning letter.

Executives would not say whether any problem stemmed from its Durata leads - wires that connect an implantable defibrillator to the heart.

Durata leads came under scrutiny earlier this year as a prominent cardiologist raised safety concerns. An earlier version of the Durata lead, called Riata, was recalled because the insulation covering the wires wore away, exposing the cables.

Chief Financial Officer John Heinmiller told Reuters there were five facilities around the world that make St. Jude's cardiac rhythm management products and components.

Asked why management thought a warning letter might be coming, Heinmiller said: "It is too early to speculate."

Typically, the FDA issues warning letters 60 to 90 days after it inspects a facility. Heinmiller said the inspection was nearly at an end, but would not say what questions inspectors asked or what comments they made during the process.

Sometimes companies get warning letters over their record-keeping practices, rather than the actual production of a device or component.

"Even if they get a warning letter, I don't think it'll have any impact on their business," said Jeff Jonas, a portfolio manager for Gabelli Health and Wellness Trust Mutual Fund. "But it's a negative in light of their lead issues, and the weaker sales. I'm betting Medtronic will be the main beneficiary."

Despite the warning letter, Starks said on the conference call that he still believed the market for cardiac rhythm products will stabilize by the middle of next year.

Starks acknowledged that the company had been selling fewer leads even as it sells more implantable defibrillators.

"We've lost share in high-voltage leads," he said. "There's no question about it."

NET EARNINGS DECLINE

Also on Wednesday, the company posted lower third-quarter net earnings due to softer sales as well as restructuring and other charges.

Net income fell to $176 million, or 56 cents per share, from $227 million, or 69 cents per share, a year earlier.

Excluding the charges, earnings were 83 cents per share, 2 cents higher than the analysts' average estimate, according to Thomson Reuters I/B/E/S.

Sales fell to $1.33 billion from $1.38 billion as austerity measures in European markets led to weak demand there. Sales fell in every business unit except for atrial fibrillation.

Sales of cardiac rhythm products, including implantable defibrillators, fell 8 percent to $691 million. Sales of defibrillators, known as ICDs, dropped 7 percent to $412 million.

Starks said he expected ICD sales of $2.832 billion to $2.862 billion for 2012, down from a previous forecast of $2.86 billion to $2.90 billion.

He also said he expected St. Jude's share of that market to remain "stable to slightly higher" in 2012, backing off his previous outlook of a gain of 0.5 percentage point.

The disclosure about the possibility of a warning letter has caused significant consternation among investors, Bernstein Research analyst Derrick Sung wrote in a note to clients.

"The fact that St. Jude took the step to disclose the potential for a warning letter leads us to believe that it is likely to happen since the company is closely involved in the inspection process," he wrote, but added that the impact would probably be limited and manageable.

Like other analysts, Sung said he was less concerned about the possibility of a warning letter than he was about the deceleration in the company's ICD sales.

Mainly, a warning letter would hold up premarket approval of any new cardiac rhythm management devices, he said, but analysts are not expecting St. Jude to introduce any major new products in that category.

Sung said he did not see a warning letter or the FDA inspection as significantly increasing the risk of any type of further regulatory action involving the Riata or Durata leads.

"The inspection and warning letter would be focused on quality system violations whereas the Riata/Durata concerns are a design issue," the note said. "We see these as two separate items."

Boston Scientific Corp, the third-largest maker of heart rhythm products after Medtronic and St. Jude, is scheduled to report its third-quarter results on Thursday.