Covidien plc. (COV)

COV 
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Covidien (COV)

Q4 2012 Earnings Call

November 09, 2012 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

Kristen M. Stewart - Deutsche Bank AG, 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 J. Dodds - Citigroup Inc, Research Division

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

Thomas J. Gunderson - Piper Jaffray Companies, Research Division

Matthew Taylor - Barclays Capital, Research Division

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

Michael Matson - Mizuho Securities USA Inc., Research Division

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

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

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Covidien Earnings Conference Call. My name is Deana, and I'll be the operator for today. [Operator Instructions] Later we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host, Mr. Cole Lannum, Vice President, Investor Relations. Please proceed.

Coleman N. Lannum

Thanks, Deana, 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, as we usually do, 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 on the newswires.

Now during today's call, we will be making some forward-looking statements, and it's always 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 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 be discussing 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, the fourth quarter 2011 included an extra selling week, a phenomenon that occurs once every 5 or 6 years for us. While exact quantification of the impact of the extra week is difficult, we believe it negatively impacted the fourth quarter 2012 sales growth rate by approximately 7 to 8 percentage points and reduced our annual growth by about 2 percentage points. We provided the sales impact at 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 for the quarter.

For the fourth quarter, we reported GAAP diluted earnings per share of $0.96. After adjusting for certain specified items, our non-GAAP earnings came in at $1.02 per share.

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

Jose E. Almeida

Thanks, Cole. While our reported results were negatively impacted by the extra week a year ago, we finished fiscal 2012 with a very solid performance. For the fourth quarter, sales are on plan, flat operationally and off 3% as reported.

Our recent acquisitions contributed about 1 point to our revenue growth in the quarter. In the Medical Devices segment, we had a strong quarter, with 2% operational growth led by Energy and Vascular products.

In the Pharmaceuticals business, we again registered a very good performance for Specialty Pharmaceuticals paced by EXALGO. And in supplies, reported sales were below a year ago, primarily reflecting the impact of the extra week.

Before I go into more detail on our fourth quarter results, I'd like to spend a brief moment in discussing the health care product marketplace. Overall, there has been very little change in the market environment over the last several months. Emerging markets are growing rapidly, and we expect this to continue as access to health care expense and the demographic trends are favorable.

In Power, emerging markets business comprising Eastern Europe, Middle East and Africa, Asia and Latin America, operational sales again grew at a double-digit pace with broad-based gains led by stapling, energy and respiratory products.

And we did not experience any negative impact to our business despite a slowing GDP growth in China and Brazil. We again registered exceptional growth in the BRIC countries, led by China and Brazil, where we will continue to make incremental investments to accelerate growth and expand our product offerings.

During the quarter, we launched our first product specifically tailored for emerging markets, the Reliamax reusable stapler.

Let me now turn to individual product categories. As done in the past, I will discuss our growth on an operational basis excluding the negative impact of foreign exchange. I'm doing this because I believe it provides a better picture of our progress and, of course, our reported results this quarter were negatively impacted by the extra week in the year-ago period.

In our large Endomechanical business, stapling products continued to perform very well, led by innovative Tri-Staple reloads. We're experiencing strong demand for Tri-Staple as we continue to grow above the market and gain incremental share in stapling.

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