Covidien plc (COV)
Q1 2012 Earnings Call
January 26, 2012 8:30 am ET
Charles J. Dockendorff - Chief Financial Officer and Executive Vice President
José E. Almeida - Chief Executive Officer, President and Director
Coleman N. Lannum - Vice President of Investor Relations
Adam T. Feinstein - Barclays Capital, Research Division
Matthew J. Dodds - Citigroup Inc, Research Division
Steve Beuchaw - Morgan Stanley, 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
Miroslava Minkova - Leerink Swann LLC, Research Division
Michael N. Weinstein - JP Morgan Chase & Co, Research Division
Topher Orr - Goldman Sachs Group Inc., Research Division
Jayson T. Bedford - Raymond James & Associates, Inc., Research Division
Robert A. Hopkins - BofA Merrill Lynch, Research Division
Joanne K. Wuensch - BMO Capital Markets U.S.
Kristen M. Stewart - Deutsche Bank AG, Research Division
Jason Wittes - Caris & Company, Inc., Research Division
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Coleman N. Lannum
Thanks, Larry. 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 brief introductory comments and then spend most of the time this morning answering your questions. The press release with details of our first quarter results was issued earlier this morning and is available on our website and on the newswires.
During today's call, we'll make some forward-looking statements and it's possible that actual results could differ materially from our current expectations. Please note that under the Safe Harbor rules, we are under no obligation to update these forward-looking statements, even if actual results or our future expectations change materially. We ask you to 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 its related financial tables, as well as in the Investor Relations section of our website, covidien.com.
For the first quarter, we reported GAAP diluted earnings per share of $1.02. After adjusting for certain specified items, our non-GAAP earnings came in at $1.13. Now I'll turn it over to Joe, who will go into more detail on the first quarter results. Joe?
José E. Almeida
Thanks, Cole. We're off to a very strong start in fiscal 2012. Our sales came in ahead of plan and we reported record gross and operating margins. We also delivered an outstanding 19% increase in adjusted EPS, making this 6 quarter in a row that we have exceeded our expectations on the bottom line.
In the Medical Devices segment, we had another solid quarter with broad-based growth led by Energy and Vascular products. In the Pharmaceuticals business, sales growth was paced by strong performance in Active Pharmaceutical Ingredients, favorable pricing in the Generic business and further gains for new products.
In Supply, sales were about even with a year ago. In the emerging markets, comprising Eastern Europe, Middle Eastern Africa, Asia and Latin America, sales grew at a double-digit pace in the first quarter with broad-based gains led by stapling and energy products. This excellent performance reflects our recent investments to accelerate growth in these geographies.
In our large Endomechanical business, we reported strong growth in stapling products led by the innovative Tri-Staple reloads. We're making good progress increasing Tri-Staple capacity, however we experienced a strong demand for the product as we continue to gain market share.
Results in Soft Tissue Repair is slightly below a year ago. Sales advanced in the large circuit category, but were more than offset by declines in mechanical fixation and mesh. This was due in part to the impact from competitive product launches in both U.S. and Europe. As I mentioned last quarter, we have faced some challenge on our Soft Tissue franchise. We're addressing these shortfalls by launching 3 new products later this year to augment our synthetic mesh and fixation device portfolio.
Our Energy business had another exceptional quarter, as new products such as the LigaSure 5 and Small Jaw, coupled with growth in electrosurgery contributing to our performance. This was the 25th consecutive quarter where we have delivered a high teens or better operation increasing vessel ceiling sales as we continue to develop the marketing gain share. This business continues to be a key growth engine for Covidien driven by low penetration, technology adoption and hospital in patient economics and outcomes.
In Vascular, we again achieved excellent results. Quarterly growth was led by Neurovascular and Chronic Venous Insufficiency products. Both of which registered exceptional growth in the quarter. The Pipeline Embolization Device continues to perform ahead of expectations, and we now expect peak annual sales to be in the $100 million to $200 million range. We're making incremental investments in selling and marketing clinical trials to accelerate our growth in the vascular category.
In Respiratory, sales of Oximetry & Monitoring products were above year ago, led by monitors as well as 3 of our franchises, Nellcor, BIS and INVOS, grew a double-digit pace.
In the Airway & Ventilation category, sales decline from last year due to lower ventilation sales reflecting capital pressures, primarily in Europe. We're on track to launch our new ventilator platform in 2013.