Covidien plc. (COV)

COV 
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Covidien plc (COV)

Q4 2011 Earnings Call

November 15, 2011 8:30 am ET

Executives

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

Coleman N. Lannum - Vice President of Investor Relations

José E. Almeida - Chief Executive officer, President and Director

Analysts

Matthew J. Dodds - Citigroup Inc, Research Division

Adam T. Feinstein - Barclays Capital, Research Division

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

Thomas J. Gunderson - Piper Jaffray Companies, Research Division

Michael Matson - Mizuho Securities USA Inc., Research Division

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

Frederick A. Wise - Leerink Swann LLC, Research Division

Jayson T. Bedford - Raymond James & Associates, Inc., Research Division

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

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Anthony Petrone - Jefferies & Company, Inc., Research Division

Jonathan J. Palmer - Credit Agricole Securities (USA) Inc., Research Division

Thomas Kouchoukos - Stifel, Nicolaus & Co., Inc., Research Division

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

Kristen M. Stewart - Deutsche Bank AG, Research Division

Sara Michelmore - Brean Murray, Carret & Co., LLC, Research Division

David R. Lewis - Morgan Stanley, Research Division

Lawrence S. Keusch - Morgan Keegan & Company, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Covidien plc Earnings Conference Call. My name is Kim, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to your host for today's conference, Mr. Cole Lannum, Vice President, Investor Relations. Please proceed, Mr. Lannum.

Coleman N. Lannum

Thanks, Kim, and good morning, everyone. With me today are Joe Almeida, Covidien's President and CEO; and Chuck Dockendorff, our Chief Financial Officer.

We'll be making some very brief introductory comments and then spend most of the time as usual this morning answering your questions.

The press release with details of our fourth quarter results was issued earlier this morning and is available on our website and the newswires.

Now during today's call, we'll make some forward-looking statements, and it's always possible that actual results could differ materially from our current expectations. We ask that you please refer to the cautionary statements contained in our SEC filings for a more detailed explanation of the inherent limitations of such forward-looking statements.

We'll also discuss some non-GAAP financial measures, with respect to our performance. A reconciliation of non-GAAP to GAAP measures can be found in our press release and in its related financial tables, as well as in the Investor Relations section of our website, covidien.com.

As a reminder, the fourth quarter of 2011 included an extra selling week, a phenomenon that occurs once every 5 or 6 years for us. While the exact quantification of the impact of the extra week is extremely difficult, we believe it added approximately 7 to 8 percentage points to the quarterly sales growth rate of the company as a whole and about 2 percentage points to our annual sales growth.

We provided the sales impact to the total Covidien level, but you should not impute it at a lower level to any segment or product line, as that may give you an inaccurate picture of our performance. After the call, off-line, both Todd and I will be more than happy to take you through these details mathematically on a case-by-case basis.

For the fourth quarter, we reported GAAP diluted earnings per share of $0.93. After adjusting for certain specified items, our non-GAAP earnings came in at $1.08 per share.

Now I'll turn it over to Joe, who will go into more detail on the fourth quarter results. Joe?

José E. Almeida

Thanks, Cole. We had a strong finish to fiscal 2011, as sales came in slightly above our expectations. We again improved our growth and operating margins, and we delivered an exceptional 29% increase in adjusted EPS in the quarter. This is the fifth quarter in a row that we have exceeded our internal expectations on the bottom line.

In the Medical Devices segment, we had another solid quarter, with broad-based growth led by Vascular, Energy and stapling products.

Quarterly sales improved in our Pharmaceuticals business for the first time since the first quarter of 2010, paced by outstanding growth for specialty products. In Supplies, all 4 product lines advanced, led by incontinence, eenteral feeding and electrodes.

In emerging markets, sales in all 3 regions, Europe, Asia and Latin America, grew at a double-digit pace during the quarter. This excellent performance reflects our recent investments to accelerate growth in these regions.

Our fourth quarter sales gains were broad-based, led by stapling and Energy products.

In our Large Endomechanical business, we reported strong growth in stapling products led by the innovative Tri-Staple Reloads. Sales growth for Soft Tissue Repair was aided by V-Loc but partially offset lower sales for BioSurgery products. Sales of Mesh Fixation products were about even with a year ago, as we faced a competitive product launch in the U.S. We made good progress in Synthetic Mesh, but our Biologics sales were below last year.

We have faced some challenges in our Soft Tissue business recently. We are addressing these shortfalls, as well as some of other underperforming areas of our business, while implementing plans to improve their results as we move into fiscal 2012.

Our Energy business had another strong quarter as new products such as LigaSure 5 and the Small Jaw coupled with growth in Electrosurgery contribute to our performance.

In Vascular, we continued to achieve the excellent results we have reported over the last quarter. On an apples-to-apples basis, sales of ev3 were up more than 40%. Growth was led by flow diversion, plaque excision and peripheral stents products. Both Neurovascular and Peripheral Vascular sales were above planned this year, and the profitability of ev3 continues to be above our expectations.

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