Covidien Unfolds FY11 Guidance – Analyst Blog

Leading healthcare product maker Covidien plc (COV) has divulged its financial forecast for fiscal 2011. In a recent investor meeting, the Ireland-based company stated that it envisions net sales for the year to budge up 6%–9% year-over-year (assuming current foreign exchange rates). Covidien currently expects sales to grow 5%–8% in fiscal 2010.

 

The current Zacks Consensus Estimate for revenues is $10.46 billion and $11.21 billion for fiscal 2010 and fiscal 2011, respectively, representing an estimated annualized growth of roughly 7%.

 

The company anticipates revenues from Medical Devices, its principal growth engine, to leap 10%–13% year-over-year in fiscal 2011. The acquisition of brain monitoring equipment manufacturer Aspect Medical is driving growth in this division. Revenues from the Medical Supplies unit are expected to be stable to up 3%.

 

However, Covidien expects weakness in its Pharmaceuticals segment to sustain in fiscal 2011 as it foresees sales from this division to clip 5% year-over-year. The division remains challenged by aggressive competition and pricing pressure which has contributed to erosion in Generic products sales.

 

Adjusted (excluding one-time items) operating margin for fiscal 2011 has been projected in the range of 21%–22%, in line with the company’s expectation for the current fiscal year. The effective tax rate is expected between 20% and 21% while free cash flow is forecasted to exceed $1.6 billion.

 

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).

 

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. Covidien has bolstered its foothold in the peripheral vascular and neurovascular markets through its acquisition of Endovascular devices maker ev3 Inc. in July 2010.

 

The company recently divested its Specialty Chemicals and sleep therapy product line (includes continuous positive airway pressure and bi-level products). The asset sales enable Covidien to rationalize its product portfolio and reallocate resources to faster-growing, higher-margin businesses.