) posted adjusted earnings per share from continuing operations
of 91 cents for the fourth quarter of fiscal 2013, which beat the
Zacks Consensus Estimate by a penny. Adjusted earnings also
increased 6% from 86 cents reported in the prior-year quarter,
despite headwinds from foreign exchange movements, the medical
device excise tax and escalated investments in emerging markets.
BIO-RAD LABS -A (BIO): Free Stock Analysis
COVIDIEN PLC (COV): Free Stock Analysis
INSYS THERAP (INSY): Free Stock Analysis
NUVASIVE INC (NUVA): Free Stock Analysis
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However, reported net income decreased 9% to $364 million (or 79
cents) a share from $400 million (or 83 cents) in the prior-year
For fiscal 2013, Covidien's adjusted earnings per share from
continuing operations increased 3% to $3.72, also beating the
Zacks Consensus Estimate by a penny. However, net income declined
2% to $1,600 million (or $3.40 a share) from $1,637 million (or
$3.37 per share) a year ago.
Revenues in the fourth quarter grew 2% (up 5% in constant
currency) to $2,560 million, almost in line with the Zacks
Consensus Estimate of $2,561 million. On a geographic basis,
revenues in the U.S. market decreased 2% to $1,295 million. On
the other hand, international revenues climbed 8% (13% in
constant currency) to $1,265 million, driven by emerging market
For fiscal 2013, revenues grew 4% to $10,235 million, roughly in
line with the Zacks Consensus Estimate of $10,238 million. On
constant currency basis, revenues increased 6%.
On an adjusted basis, fourth-quarter gross margin dropped 70
basis points (bps) to 58.2% in the quarter due to unfavorable
foreign exchange rates, partially offset by positive pricing
along with favorable volume and mix.
Selling, general and administrative expenses increased 2.0% to
$835 million on account of the medical device excise tax and
sales and marketing initiatives in emerging markets, partially
offset by improved productivity. Research and Development
(R&D) expenses escalated 25.8% to $146 million in the
Adjusted operating income dropped 2.4% to $530 million. Adjusted
operating margin dipped 100 bps to 20.7% in the quarter.
Revenues from the larger Medical Devices segment rose 3% (up 6%
in constant currency) to $2,126 million in the quarter. The
division is benefiting from new product offerings and higher
Within Medical Devices, revenues from Endomechanical Instruments
escalated 8% to $622 million, led by solid gains from Tri-Staple
reloads. Sales of Soft Tissue Repair products inched up 1% to
$219 million, led by improved suture sales. Revenues from Energy
Devices climbed 7% to $358 million, again reflecting strong
double-digit vessel sealing sales.
Revenues from Oximetry and Monitoring under the above broader
segment rose 5% to $241 million, owing to higher sales of sensors
acquired from Oridion and capnography offerings. However, Airway
& Ventilation sub-segment revenues dropped 4% to $186 million
due to soft ventilator sales, partially offset by gains from
Vascular product sales inched up a mere 1% to $412 million, as
solid growth of chronic venous insufficiency offerings and
peripheral and neurovascular products was dampened by depressed
On the other hand, revenues from the smaller Medical Supplies
segment slipped 1% to $439 million in the quarter. Sluggish sales
of all four product lines under the segment led to the decline.
Covidien repurchased roughly 10.2 million ordinary shares under
its share buyback program in the third quarter. Shares
outstanding at the end of the quarter were $463 million.
Covidien reiterated its outlook for fiscal 2014. COV expects
revenues to grow 2-5% year over year at constant exchange rate
(CER) for fiscal 2014. Revenues for the core Medical Devices
segment is anticipated to grow in the range of 2-5%, while the
same for the smaller Medical Supplies business is likely to
remain flat in the fiscal year.
Moving ahead, adjusted operating margin is likely to remain in
the band of 21.5-22.5% and effective tax rate in the range of
16.0-17.0%. Moreover, COV is aiming a dividend payout ratio in
excess of 35% over time and is targeting to achieve a ratio of at
least 30% within the next 12 months.
Covidien's modest fourth-quarter results keep us on the
sidelines. Although the company is gaining significant grounds in
emerging markets, tepid growth in the U.S. is a matter of
concern. Moreover, the company's bottom line is under pressure
due to escalated investments in emerging markets and headwinds
from foreign exchange fluctuations. In addition, Covidien faces
stiff competition and remains exposed to pricing and utilization
headwinds, along with acquisition risks.
However, the company is adequately placed to achieve its
long-term revenue and earnings growth targets based on its
attractive fundamentals, strategic R&D investment, effective
execution, new product cycle and expansion into the emerging
markets. It is also enhancing shareholder value through dividends
and share repurchases, leveraging healthy free cash flow and
strong earnings power.
Covidien currently carries a Zacks Rank #3 (Hold). Other
Bio-Rad Laboratories, Inc.
INSYS Therapeutics Inc.
) are expected to do well in the medical products industry. All
these stocks carry a Zacks Rank #1 (Strong Buy).