Covidien plc. (COV)

COV 
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Covidien (COV)

Q1 2014 Earnings Call

January 24, 2014 8:30 am ET

Executives

Coleman N. Lannum - Vice President of Investor Relations

José E. Almeida - Chairman, Chief Executive Officer and President

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

Analysts

Matthew J. Dodds - Citigroup Inc, Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

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

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

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

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

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

Matthew Taylor - Barclays Capital, Research Division

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

Richard Newitter - Leerink Swann LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2014 Covidien plc Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I'd now like to turn the call over to Mr. Cole Lannum, Vice President of Investor Relations. You may begin.

Coleman N. Lannum

Thanks, Frances, and good morning, everyone. With me today are Joe Almeida, Covidien's Chairman, President and CEO; and Chuck Dockendorff, our Chief Financial Officer. We'll be making some brief introductory comments and then spend most of the time this morning answering your questions.

Now during today's call, we may make some forward-looking statements, and it's possible that actual results could differ materially from our current expectations. Please refer to the cautionary statements contained in our SEC filings, including Form 10-K, for additional information about factors that could cause actual results to differ from those anticipated in such forward-looking statements.

We 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 our press release and its related financial tables, as well as in the Investor Relations section of our website, covidien.com.

As a reminder, we recently announced changes in our revenue reporting to provide a more transparent view of our financial performance. Beginning this quarter, we will be speaking to revenue under this new format.

For the first quarter, we reported GAAP diluted earnings per share of $0.87. After adjusting for certain specified items, our non-GAAP earnings came in at $1 per share. The after-tax impact of amortization in the quarter impacted earnings by $0.09 per share.

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

José E. Almeida

Thanks, Cole. Let me begin by saying that we're very pleased again this quarter with our results. Sales were above plan, up 5% operationally and 3% -- and up 3% as reported. In the Medical Devices segment, we had a very good quarter, posting 6% operational growth.

I'd like to start off with some brief comments of our sales performance on a geographic basis. First, we were very pleased with our sales growth in the developed markets, particularly in the U.S. and Europe. Sales growth was stronger than anticipated in both of these regions. We're hopeful that this is a sign of improving market conditions and that this momentum will continue for the remainder of the year.

Turning to emerging markets. We had another solid quarter with operational sales growth of 14%. We also posted double-digit growth for the BRIC countries despite changes in the reimbursement system and difficult comparisons in Russia.

Let me now turn to our first quarter performance in individual product sales categories. As usual, I will discuss our growth on an operational basis, excluding the impact of foreign exchange. Within Surgical Solutions, our Advanced Surgical business, which makes about 1/3 of our overall revenue, had an excellent quarterly performance with 10% growth. This growth was primarily attributable to stapling and vessel sealing, 2 of our largest product categories. We continued to grow above market in stapling during the quarter, led by the innovative Tri-Staple reloads. This growth is a result of the strong demand and market share gains as we continue to execute on our strategy of moving from open to MIS procedures. Growth in Advanced Surgical is also driven by a double-digit gain from vessel sealing, which continued to benefit from the introduction of Sonicision, as well as from new products, including LigaSure Impact and Blunt Tip.

In addition, we're very pleased with the performance of our GI and interventional lung businesses, which both had double-digit gains this quarter. Finally, we were also pleased with our performance in the hernia space. The investments we have made in the synthetic mesh space are paying off as this product category achieved substantial growth this quarter.

Growth in General Surgical was driven by sutures and primarily resulted from gains in our barbed V-Loc suture, particularly in emerging markets. For the next quarters, we expect growth of General Surgical to be negatively impacted by the divestiture of our Confluent BioSurgery product line, which closed last week. As a reminder, this product line had quarterly revenues of between $15 million and $20 million, predominantly in the U.S.

In Vascular Therapies, we delivered middle -- mid-single-digit growth in both Peripheral and Neurovascular. Growth in Peripheral Vascular was driven by chronic venous insufficiency products, which once again posted strong double-digit growth. As we mentioned in our last call, we faced difficult comparisons in compression this quarter. Now that this is behind us, we expect to see an improvement in the growth rates for compression throughout the year.

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