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Covidien plc : Covidien's 4th-Quarter Net Up 2.2% on Lower Tax Rate; Core Earnings Down

11/09/2012 | 06:54am US/Eastern
   By Saabira Chaudhuri 

Covidien PLC's (COV) fiscal fourth-quarter earnings rose 2.2% as the effective tax rate declined, even as margins narrowed and core earnings slipped.

Results beat Wall Street estimates.

The maker of operating-room gear, generic drugs and other items had in recent quarters boasted strong sales in its medical devices segment, which it has reshaped in recent years. However, sales in the segment slipped in the latest period pressured by an extra selling week in the prior-year quarter and foreign exchange impacts.

The company late last year unveiled plans to spin off its pharmaceuticals business into a standalone public company, and in September it said these plans were on track. Also in September, Covidien agreed to buy privately held CNS Therapeutics Inc. for about $100 million in a push to use CNS's central nervous system and pain management products in development to complement its own pipeline.

On Friday, Chief Executive Jose E. Almeida called the quarter's results "solid," but he said they "were restrained by the strength of the U.S. dollar against most foreign currencies and by the anomaly of an extra selling week in the fourth quarter of 2011." He added that "in Medical Devices, our largest business segment, we continued to generate above-market growth, paced by new offerings that included the Sonicision cordless ultrasonic dissection device, Solitaire FR revascularization device and the Pipeline embolization device."

For the quarter ended Sept. 28, Covidien reported a profit of $461 million or 95 cents a share up from a year-ago profit of $451 million, or 92 cents a share. Excluding items such as restructuring charges, earnings fell to $1.02 from $1.08.

Sales declined 2.5% to $3 billion. Covidien noted that the sales decrease reflected unfavorable foreign exchange rate movement, which decreased the rate by about three percentage points, and the inclusion of an extra selling week in the fourth quarter of last year, which reduced the rate by seven to eight percentage points.

Analysts polled by Thomson Reuters most recently forecast earnings of $1 on revenue of $2.98 billion.

Gross margin narrowed to 55.6% from 56.5%.

Sales in the company's medical-devices business, its largest by revenue, fell 1.4% to $2.06 billion. Medical-supplies sales fell 8.7% to $439 million, while pharmaceuticals sales slipped 1% to $502 million.

Covidien said the quarter's effective tax rate was 9.2%, versus an effective tax rate of 19.7% in the fourth quarter of last year. Meanwhile, the adjusted tax rate was 17.3%, versus 18.2% in the fourth quarter of last year.

In September, Covidien's board approved a 16% increase in the company's quarterly dividend, which the health-care product conglomerate said reflected its performance this year and confidence in future growth.

On Friday, Mr. Almeida said looking to the current fiscal year, the company remains "comfortable" with the sales and operating margin guidance issued in September. "Despite the headwinds of today's market environment and the U.S. medical device tax, we are confident that our robust pipeline of new products, attractive investment opportunities and capital flexibility will enable us to meet marketplace challenges and deliver good organic growth," he said.

Shares closed Thursday at $53.36 and were inactive premarket. The stock has climbed 19% so far this year.

Write to Saabira Chaudhuri at

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