Covidien plc. (COV)

COV 
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Covidien plc (COV)

38th Annual Deutsche Bank Health Care Conference

May 30, 2013 12:00 pm ET

Executives

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

Coleman N. Lannum - Vice President of Investor Relations

Analysts

Kristen M. Stewart - Deutsche Bank AG, Research Division

Lauren Coste - Fitch Ratings Ltd.

Presentation

Kristen M. Stewart - Deutsche Bank AG, Research Division

So thank you for joining us. It is my pleasure to introduce Covidien for this session here at the Deutsche Bank Health Care Conference. I'm Kristen Stewart, the medical supplies and device analyst. So, we have Joe Almeida, as well as Cole Lannum here as well, and I'm going to move Joe's mic closer to him so Cole can actually talk. I'm just kidding, Cole. But anyway, just to kind of kick it off, we actually had Mallinckrodt in yesterday and they were kind of going through. They had about the same. So -- but anyway, so obviously, that spin is coming up and looks to be progressing very nicely. So can you just talk, just a little bit, very high level about, just kind of how you're thinking about Covidien, kind of post the spin and to what extent kind of the strategy may or may not change this in terms of capital allocation or M&A approach, or just kind of general philosophy?

Jose E. Almeida

One of the reasons that we decided to spin-off Mallinckrodt was we did not pay enough attention and did not dedicate enough resources to do business. So we are very bullish about their future because they'll be able to do that on their own, and have their own cash flow to deploy. We had invested significant, in the last 3 years in Mallinckrodt's pipeline and their ability to have better manufacturing operations. So that part was disproportionately spent in that business. But we didn't pay a significant amount of attention in terms of M&A, other than being really focused in their strategy that Mark Trudeau was very clear yesterday. Going forward, Covidien, we will have a disproportionate large and well-positioned Medical Devices business. We too, have a Medical Supplies business, which we think is important to the way we go to market, but we continue to deploy most of our resources to Medical Devices. We are pretty solid -- solid M&A strategy, as well as organic growth strategy by managing our portfolio and deploying money to the areas of growth that Covidien has today. With -- principally focused in emerging markets, neurovascular, energy and endostapling. Those are the areas that we have a very large focus. We also have a selective focus in our Vascular business, specifically in the peripheries when it comes to the drug-coated balloon and the amount of money that we invest in making that business successful when it launches, and it gets approved by the FDA.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Right, and just longer term, I think you've commented on the ability to still feel confident about growing the mid-single digits and through operational and financial leverage, kind of double-digit. I guess, what are some of the things that give you that confidence, kind of within, yes, maybe the more medical side you highlighted some of these key areas you're focusing on. But what do you view as being the greatest contributor towards growth over the next 3 to 5 years?

Jose E. Almeida

There are four specific pillars. The first one is, we will continue to invest in technology. We do have the ability to be very efficient in R&D deployment. We deploy cash to all the groups around the world. Now we have two in emerging markets, now operating for close to 2 years. They're doing very well. So technology and innovation will continue to play a significant role for Covidien. The second one is have ownership of a specialty. So if we're in general surgery, we're in peripheral vascular and neurovascular, we tend to own that area with #1 in the virtual market leadership positions. By doing that, you have the ability to offer better economical value for your customers, associated with an eye on the clinical outcomes, your technology and your innovation are providing. The third one would be a relentless search for opportunities to improve our operations across the globe. Despite the fact that, that doesn't move the needle on the top line, it does move on the bottom line and also is an ROIC driver for the company. And lastly, emerging markets were, for some products of Covidien, probably 50% of our growth is coming from emerging markets. So our investment is relentless there. One point in time we thought that we would be finished by this year. We have another double down program coming up. We still, in my estimation, underinvested in places like Brazil and South Africa, Mexico as well, despite the fact that we have good investments and good growth in all these businesses, you've got to be able to be there in all categories of hospitals. For Brazil, Covidien is very focused on the private sector, but the public sector offer the great opportunities. So we associate those pillars with a strong eye for M&A in terms of technology, market access for emerging markets, as well as white spaces.

Kristen M. Stewart - Deutsche Bank AG, Research Division

And where roughly, I guess if we just kind of take out the Pharmaceutical business, where does emerging markets, I would, I guess as a percentage of sales for emerging markets that the remaining, kind of Medical Device and Supply business?

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