Ireland-based healthcare product maker Covidien plc (COV) reported third-quarter fiscal 2010 results with adjusted (excluding one-time items such as restructuring charges and tax-related adjustments) earnings per share of 85 cents beating the Zacks Consensus Estimate of 80 cents and exceeding the year-ago quarter earnings of 74 cents.
Net income from continued operation sailed 29% year-over-year to $352 million (or 70 cents a share), favored by higher medical devices sales and lower research and development expenses.
Revenues
Net sales edged up 2% year-over-year to $2.56 billion, but missed the Zacks Consensus Estimate of $2.62 billion as incremental revenues from medical devices were marred by the decline in the pharmaceuticals division.
Segment Analysis
Medical Devices revenues grew 6% year-over-year to $1.54 billion on the back of double-digit revenue expansions across Oximetry and Monitoring (up 22% year-over-year), Energy Devices (up 14%) and Vascular (up 22%) product-lines.
Energy revenues were boosted by healthy vessel sealing sales while the acquisition of brain monitoring equipment manufacturer Aspect Medical catalyzed Oximetry and Monitoring sales growth. This was, by some measure, offset by a 6% decline in Airway and Ventilation products sales, impacted by the divestiture of the diagnostics product unit.
Healthy results from medical devices were, however, eclipsed by a sluggish pharmaceuticals business as sales clipped 6% year-over-year to $507 million. The division remains challenged by aggressive competition and pricing pressure which has contributed to erosion in Generic products sales.
Moreover, revenues from Specialty Pharmaceuticals and Active Pharmaceutical Ingredients dipped year-over-year in the quarter. Covidien expects weakness in its pharmaceuticals segment to sustain through fiscal 2010.
Revenues from Medical Supplies segment also fell 3% year-over-year to $427 million, attributable to lower sales of SharpSafety (offers needles, syringes and disposable products) and Nursing Care products.
Margins
Gross margin of 55.6% represents an increase from 54.4% a year-ago, benefiting from by better sales mix in the Medical Devices segment, synergies from restructuring initiatives and favorable foreign exchange translation. Adjusted operating margin improved to 22.2% from 21.3% a year ago.
Covidien is a leading global healthcare products company that develops and markets medical solutions for better patient outcomes. The company’s core medical devices business faces stiff competition from Johnson & Johnson (JNJ), Becton Dickinson (BDX) and C.R. Bard (BCR).
Outlook
Covidien has not provided any updated guidance for fiscal 2010. It expects revenues and operating margins to grow 5%-8% and 21%-22%, respectively, in the current fiscal year.
Covidien boasts a well diversified product and technology portfolio. The company remains committed to rolling out new products and technologies, focusing on faster-growing products and markets, and boosting market share in core segments through investments in sales and marketing infrastructure.
The recent $2.6 billion acquisition of Endovascular devices maker ev3 Inc has pushed Covidien’s leadership ahead in the endovascular devices market giving it a strong foothold in both the peripheral vascular and neurovascular sub-segments.
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