), a large-cap medical technology company, reported its adjusted
earnings per share (from continuing operations) of $1.02 for the
fourth quarter of fiscal 2012, 2 cents above the Zacks Consensus
Estimate but 6 cents lower than the year-ago quarter earnings.
Adjusted earnings exclude one-time items such as
acquisitions-related expenses, restructuring and related charges
along with extraordinary expenses associated with the divestment
of the Pharmaceutical segment and impairment charges resulting
from the discontinuation of the Duet product line.
For the quarter under review, profit from continuing operations
inched up 0.9% to $464 million (or 96 cents a share).
For fiscal 2012, Covidien reported adjusted earnings per share
(from continuing operations) of $4.26, 2 cents above the Zacks
Consensus Estimate and 29 cents higher than the year-ago fiscal
earnings. Adjusted earnings exclude one-time items and
extraordinary charges. Profits from continuing operations
increased 1% to $1,902 million (or $3.92 a share).
Revenues for the fourth quarter of 2012 dropped 3% year over year
to $3,001 million. Sales were above the Zacks Consensus Estimate
of $2,992 million. Currency exchange rates negatively impacted
quarterly revenue by 3%. Sales were also affected by the
inclusion of an extra selling week in the year-ago quarter, which
lowered revenues by 7% to 8%.
On a geographic basis, revenues in the U.S. market inched down 1%
to $1,668 million and international sales dropped 5% (up 2% in
constant currency) to $1,333 million.
For fiscal 2012, revenues grew 2% to $11, 852 million, beating
the Zacks Consensus Estimate of $11,842 million. Sales were
adversely affected by unfavorable currency fluctuations and the
inclusion of an extra selling week in fiscal 2012.
Revenues from the larger Medical Devices segment decreased 1% (up
2% in constant currency) year over year to $2,060 million. Among
other factors, product recall and end-market headwinds offset
higher sales from new offerings such as Sonicision cordless
ultrasonic dissection device, Solitaire FR revascularization
device and the Pipeline embolization device.
Within Medical Devices, revenues from Endomechanical Instruments
dropped 7% to $578 million as soft surgical instruments sales
more than offset solid Tri-Staple sales. The recall of the Duet
product line and pricing pressure affected surgical instruments
sales in the quarter.
Sales of Soft Tissue Repair products declined 6% to $216
million, as growth in the mesh and bio-surgery products were
masked by lower mechanical fixation sales. Further, Airway &
Ventilation sub-segment sales dipped 3% to $193 million.
Revenues from Energy Devices climbed 6% to $336 million, boosted
by strong vessel sealing sales. Revenues from Oximetry and
Monitoring sub-segment increased 2% to $230 million, owing to
higher sales of monitors and sensors. Moreover, Vascular product
sales grew 4% to $407 million, backed by outstanding growth
across neurovascular offerings.
Revenues from Covidien's Pharma segment edged down 1% (up 2% in
constant currency) to $502 million. Robust gains in the Specialty
Pharmaceuticals business were offset by lower Contrast Product
and Radiopharmaceuticals sales.
Specialty Pharmaceuticals sales surged 11% to $152 million
spurred by solid revenue from the Exalgo product. Active
Pharmaceutical Ingredients sales increased 3% as a result of
higher sales of peptides but Contrast Product sales dropped 8%
due to the sluggish U.S. markets. Revenues from
Radiopharmaceuticals plunged 10% due to soft sales in the U.S.
Sales from Medical Supplies segment declined 9% (down 8% in
constant currency) to $439 million in the quarter due to lower
revenues from SharpSafety and Original Equipment Manufacturing
Gross margin were 55.6% in the fourth quarter compared to 56.5%
in the year-ago comparable period. On an adjusted basis, gross
margin was 56.5% versus 56.7% in the prior year-quarter.
Unfavorable currency fluctuation offset lower manufacturing costs
and a favorable business mix. Adjusted operating margin stood at
21.2% compared with 22.3% a year ago.
Selling, general and administrative expenses were higher at 31%
of sales in the reported quarter compared with 30.5% of sales in
the year-ago quarter. R&D expense decreased to 5.1% of
revenues versus 5.4% in the prior-year period.
Covidien repurchased roughly 9.6 million ordinary shares under
its share buyback program in the fourth quarter of 2012.
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. Covidien's larger
Medical Device unit overlaps with the business of its competitors
Johnson & Johnson
Covidien continues to expand both organically as well as
inorganically. The company is adequately placed to achieve its
long-term revenue and earnings growth targets based on its
attractive fundamentals, strategic acquisitions, 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
Moreover, Covidien's recent acquisitions are in tandem with its
strategy to invest in products that can offer global competitive
advantage. In October, Covidien completed the acquisition of CNS
Therapeutics, Inc., a St. Paul Minnesota-based specialty
pharmaceutical company. The inclusion of CNS Therapeutic's
marketed products along with its solid product pipeline should
boost Mallinckrodt's pain management branded product portfolio.
However, Covidien faces stiff competition and remains exposed to
pricing, utilization headwinds, along with acquisition risks. We
remain concerned about the tepid U.S. health services industry
and the soft European economy, which has led to fluctuating share
Moreover, the company has been plagued by product recalls.
Also, foreign exchange translation is expected to dampen sales
growth. We currently have a long-term Neutral recommendation on
the stock, which carries a short-term Zacks #3 Rank (Hold).
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