Covidien plc. (COV)

COV 
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Covidien (COV)

Q2 2013 Earnings Call

April 26, 2013 8:30 am ET

Executives

Coleman N. Lannum - Vice President of Investor Relations

Jose E. Almeida - Chairman of the Board, Chief Executive Officer and President

Charles J. Dockendorff - Chief Financial Officer and Executive Vice President

Analysts

David R. Lewis - Morgan Stanley, Research Division

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Matthew J. Dodds - Citigroup Inc, Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

Frederick A. Wise - Stifel, Nicolaus & Co., Inc., Research Division

Richard Newitter - Leerink Swann LLC, Research Division

Jason Wittes - Brean Capital LLC, Research Division

David H. Roman - Goldman Sachs Group Inc., Research Division

Joanne K. Wuensch - BMO Capital Markets U.S.

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division

Matthew Taylor - Barclays Capital, Research Division

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2013 Covidien Earnings Conference Call. [Operator Instructions] During today's call, Covidien may make some forward-looking statements and it's possible that actual results could differ materially from their current expectation. Please refer to the cautionary statements contained in the Covidien's SEC filing, included in the form 10-K and 10-Q report for additional information about factors that could cause actual results to materially differ from those anticipated in such forward-looking statements. The company may also discuss some non-GAAP financial measures with respect to our performance. A reconciliation of non-GAAP to GAAP measures can be found in Covidien's press release and its related financial tables, as well as in the Investor Relations section of covidien.com.

I would now like to turn the presentation over to Mr. Cole Lannum, Vice President, Investor Relations. Please proceed, sir.

Coleman N. Lannum

Thanks, Chicana and good morning, everyone. With me today are Joe Almeida, Covidien's Chairman, President and CEO; and Chuck Dockendorff, our Chief Financial Officer. In addition, given the impending spin-off of our Pharmaceutical business in a couple of months, we also have Mark Trudeau, President of Pharmaceuticals, joining us on the call today. We'll be making some brief introductory remarks and then spend most of the time this morning answering your questions. I want to remind you that today's call we'll focus on our second quarter results. We will not be discussing guidance or our future outlook. As noted in the release, we'll provide guidance for both RemainCO Covidien and for Mallinckrodt after the close next Friday. For the second quarter, we reported GAAP diluted earnings per share of $0.93 and after adjusting for certain specified items, our non-GAAP earnings came in at $1.12 per share.

I'll now turn the call over to Joe, who'll go into more detail on the second quarter results. Joe?

Jose E. Almeida

Thanks, Cole. Let me begin by saying that we am pleased with our second quarter results. Sales are on plan, up 7% operationally and up 5% as reported. In several key categories, including stapling, Energy, neurovascular and Specialty Pharmaceuticals, we continue to grow ahead of the market and the recent investments we've made are contributing to our robust performance. In the Medical Devices segment, we had a very good quarter, with 6% operational growth and broad-based increases across the segment.

In the Pharmaceuticals business, sales were significantly higher than a year ago, led by an outstanding performance for Specialty Pharmaceuticals. And in supplies, reported sales were above a year ago, reflecting increases in Nursing Care, led by enteral feeding products.

Before I go into more detail on these results, I'd like to spend a brief moment discussing the health care products marketplace. Overall, we saw very little change in the market environment over the last several months, with no rebound in the U.S. in procedures of interest to us. In Western Europe, austerity programs and the economics slowdown continue to pressure all of med tech, with particular weakness in Spain and Italy. However, our overall European performance was better than expected, driven by the much smaller, but faster growing emerging market portion of Europe.

For our emerging markets business overall, comprising Eastern Europe, Middle East and Africa, Asia and Latin America, we had another excellent quarter, with operational sales growth in the high teens and double-digit increase in all regions and all product lines. The performance was led by continued strength in the BRIC countries. These results reflect the investments we've made in the last couple of years to expand sales and marketing and to build an on the ground presence. We still see excellent opportunities in emerging markets, and we'll be ramping up our investments throughout this year. The results we're now delivering from our prior investments give us confidence that this spending ramp-up will deliver further growth in this fast-growing regions going forward.

Let me now turn to our second quarter performance and individual product categories. As in the past, I will discuss our growth on an operational basis excluding the impact of foreign exchange. In our Endomechanical business, stapling products had another strong quarterly performance, led the innovative Tri-Staple reloads. We are experiencing strong demand for the Tri-Staple as we continue to grow above the market and gain incremental share in stapling. Our Energy business turned in another good performance, led by a double-digit gain from vessel sealing for the 30th consecutive quarter. New products, including LigaSure Small Jaw and Sonicision contributed to our good results.

Turning to Vascular. Our overall growth rate slowed a bit this quarter primarily due to the loss of a U.S. GPO contract in our compression business. We again delivered double-digit growth in neurovascular and chronic venous insufficiency products. We continue to see stroke as an attractive market, and see opportunity for the new generation of treatment devices such as Solitaire for mechanical thrombectomy. We plan to augment our investments in technology and clinical trials to further establish this important therapy.

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