) reported its adjusted earnings per share of $1.10 for the first
quarter of fiscal 2013, 4 cents above the Zacks Consensus
Estimate but 3 cents lower than the year-ago quarter earnings.
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Adjusted earnings exclude one-time items such as tax-related
expenses, restructuring and related charges along with
extraordinary expenses associated with the divestment of the
For the quarter under review, net income was flat year-over-year
at $493 million (or $1.03 a share) due to higher expenses, which
dampened solid sales growth.
Covidien's core Medical Devices is growing at a healthy pace,
particularly in certain key categories. Moreover, the company is
gaining considerable traction in emerging markets, led by its
portfolio reshaping initiatives toward high-growth/high-margin
businesses. The company remains on track regarding the spin-off
of its Pharmaceutical business by mid-2013.
Revenues for the first quarter of 2013 increased 5% year over
year to $3,056 million, primarily led by higher sales in the
Medical Devices segment. Sales were above the Zacks Consensus
Estimate of $2,996 million. Currency exchange rates negatively
impacted quarterly revenue by 1%.
On a geographic basis, revenues in the U.S. market increased 3%
to $1,648 million. International sales jumped 8% (up 10% in
constant currency) to $1,408 million, driven by emerging market
Revenues from the larger Medical Devices segment jumped 8% (up 9%
in constant currency) year over year to $2,133 million. The
division is benefiting from acquisitions and new product
Within Medical Devices, revenues from Endomechanical Instruments
quite unexpectedly climbed 7% to $620 million, led by solid gains
from Tri-Staple reloads. Sales of Soft Tissue Repair products
grew 3% to $225 million, on the back of higher suture, mesh and
mechanical fixation sales. Further, Airway & Ventilation
sub-segment sales rose 8% to $195 million, boosted by the
acquisition of Newport Medical and double-digit growth in
Revenues from Energy Devices climbed 8% to $346 million, again
reflecting strong vessel sealing sales. Revenues from Oximetry
and Monitoring sub-segment surged 16% to $241 million, owing to
higher sales of monitors and sensors as well as the Oridion
acquisition. Moreover, Vascular product sales grew 7% to $414
million, backed by solid growth across neurovascular and
peripheral vascular offerings.
Revenues from Covidien's Pharma segment remained flat year over
year at $489 million. Robust gains in the Specialty
Pharmaceuticals business were offset by lower Active
Pharmaceutical and Contrast Product sales.
Specialty Pharmaceuticals sales soared 25% to $167 million
spurred by solid revenue from the Exalgo product and the newly
launched Concerta ER tablets. However, Active Pharmaceutical
Ingredients sales decreased 9% mainly due to unsuitable customer
order timing. Contrast Product sales too declined 17% due to the
sluggish U.S. markets and tough year-over-year comparables.
Revenues from Radiopharmaceuticals inched down 1%.
Sales from Medical Supplies segment increased 2% (up 3% in
constant currency) to $434 million in the quarter due to
increased SharpSafety sales. Additionally, the exit of Abbott
Nutrition, a division of
), has created opportunities for the nursing care business to
gain market share in the U.S. enteral feeding pumps market.
Gross margin was 57.5% in the fourth quarter compared to 58.7% in
the year-ago comparable period. On an adjusted basis, gross
margin was 57.5% versus 58.8% in the prior year-quarter.
Unfavorable currency fluctuation offset improved productivity and
favorable business mix.
Selling, general and administrative expenses were lower at 30.8%
of sales in the reported quarter compared with 31.3% of sales in
the year-ago quarter. R&D expense edged down to 4.9% of
revenues from 5.0% in the prior-year period. Adjusted operating
margin stood at 22.4% compared with 24.3% a year ago.
Covidien repurchased roughly 4.4 million ordinary shares under
its share buyback program in the first quarter.
Covidien raised its fiscal 2013 guidance on the back of the
successful first quarter results, an extended research and
development R&D tax credit along with the recent approval
from the Food and Drug Administration (FDA) for its Concerta ER
For fiscal 2013, Covidien expects net revenues to grow by 5% to
8% (earlier 3% to 6%) year over year. The company's core Medical
Devices segment is expected to be up 5%-8% (earlier 4%-7%). The
Pharmaceuticals division is anticipated to grow at a high
single-digit rate or more (earlier 1% to 4%) and the Medical
Supplies business is expected to grow 1%-3% (earlier flat) year
over year. All of the above mentioned growth rates are based on
current foreign exchange rates.
Additionally, adjusted operating margin forecast remains
unchanged in the range of 22% to 23%. Effective tax rate is
expected in the band of 17.5 and 18.5% (earlier 18% and 19%) for
The fiscal 2013 Zacks Consensus Estimates for revenues and
earnings are $12,379 million and $6.70 per share, respectively.
About the Company
Covidien is a leading global health care products company with an
impressive history of developing and manufacturing high-quality
products in a cost-effective manner. The company boasts of a well
diversified product and technology portfolio.
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 emerging markets. It is also enhancing
shareholders' value through dividends and share repurchases,
leveraging healthy free cash flows and strong earnings power.
However, Covidien faces stiff competition and remains exposed to
pricing and utilization headwinds, along with acquisition risks.
We remain concerned about the tepid U.S. health services industry
and the soft European economy. Also, foreign exchange translation
is expected to dampen growth.
Covidien currently carries a short-term Zacks #3 Rank (Hold).
Medical products companies, such as
Nxstage Medical, Inc.
), which carries a Zacks Rank #1 (Strong Buy), is expected to do
), with a Zacks Rank #2 (Buy), will be reporting its results on