Covidien (COV) Beats on Q4 Earnings, Sales; Both Up Y/Y - Analyst Blog

Covidien plc ( COV ) reported fourth-quarter fiscal 2014 earnings of $1.15 per share, which beat the Zacks Consensus Estimate by 14 cents. Earnings per share (EPS) also surged 26.4% from the year-ago quarter on the back of higher sales growth and stringent cost control.

Quarter Details

Sales increased 6.8% to $2.73 billion, also outperforming the Zacks Consensus Estimate of $2.68 billion. The year-over-year growth was driven by robust performance across all the segments.

Surgical solutions sales increased almost 11% to $1.33 billion. Stapling posted considerable growth in the quarter. Vessel sealing, interventional lung, synthetic mesh and Covidien's BARRX gastrointestinal business achieved double-digit sales growth. Given Imaging takeover also drove advanced surgical sales.

Vascular Therapies sales climbed up 3% to $426 million due to higher neurovascular sales. The increase was driven by double-digit sales growth in both stents and access delivery products and higher sales of coils and flow diversion products.

Peripheral Vascular sales grew modestly, with increases in sales of chronic venous insufficiency and procedural support products, partially offset by decreases in sales of compression and dialysis products in the United States.

Respiratory and Patient Care sales inched up 3% to $974 million. Patient Monitoring sales increased 6% year over year, primarily resulting from increased sales of capnography products, which continued to grow well above 20%.

Airway & Ventilation sales grew modestly in the quarter due to increased sales of ventilators. Nursing Care sales increased slightly on a year-over-year basis, led by increased sales of wound care, enteral feeding and incontinence products. Patient Care sales grew slightly primarily due to higher sales of electrodes and OEM products.

Gross margin expanded 260 basis points (bps) from the year-ago quarter to 60.8%.

Adjusted selling, general & administrative (SG&A) expense, as percentage of revenues, declined 130 basis points (bps) on a year-over-year basis. The decline was primarily attributed to productivity improvements partially offset by higher costs related to acquisitions and transaction cost related to the company's pending acquisition by Medtronic ( MDT ).

Adjusted research & development (R&D) expense increased 40 bps to 5.4% in the quarter driven by continuing investment in strategic initiatives.

Operating margin expanded 360 bps from the year-ago quarter to 24.3%, primarily due to lower SG&A and a higher gross margin base.


We believe Covidien will continue to benefit from its expanding product pipeline, primarily driven by acquisitions in the near term.

Zacks Rank

Currently, Covidien has a Zacks Rank #3 (Hold). Some better-ranked stocks include GW Pharmaceuticals ( GWPH ) and Abaxis ( ABAX ). While GW Pharmaceuticals sports a Zacks Rank #1 (Strong Buy), Abaxis carries a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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