Ireland-based health care product maker Covidien plc (COV) reported fourth-quarter fiscal 2010 (ended September 24) adjusted earnings per share of 84 cents, exceeding the Zacks Consensus Estimate of 74 cents and the year-ago earnings of 71 cents.
For fiscal 2010, adjusted earnings of $3.38 per share outshone the Zacks Consensus Estimate of $3.28 and were above the corresponding year-ago figure of $2.78. Adjusted earnings exclude one-time items such as acquisition and restructuring charges, loss on divestitures and tax-related adjustments.
Net income for the quarter was $443 million (or 89 cents a share), representing a staggering eightfold annualized growth. Profits were boosted by higher sales of medical devices. Moreover, the year-ago profit (of $56 million) was hit by hefty tax expenses. For fiscal 2010, net income rocketed 80% year over year to $1.63 billion (or $3.24 a share).
Net sales for the quarter rose 3% year over year to $2,670 million, also beating the Zacks Consensus Estimate of $2,638 million. Higher revenues from the Medical Devices business were masked by the sustained decline in the Pharmaceuticals division. Revenues for fiscal 2010 edged up 2% year over year to $10.43 billion, in line with the Zacks Consensus Estimate.
Segment Analysis
Medical Devices revenues for the quarter shot up 9% year over year to $1.77 billion riding on double-digit sales expansions across Vascular (up 73% year over year), Oximetry and Monitoring (up 16%) and Energy Devices (up 12%) product-lines.
Oximetry and Monitoring sales growth was fueled by the acquisition of brain monitoring equipment manufacturer Aspect Medical while healthy vessel sealing sales boosted Energy revenues. Acquisition of endovascular devices maker ev3 contributed to the solid growth at the Vascular business. This was, in part, marred by a 13% decline in Airway and Ventilation products sales, impacted by the divestiture of the sleep therapy product line (includes continuous positive airway pressure and bi-level products) and lower ventilation revenues.
Covidien’s Pharmaceuticals business continues to struggle as sales clipped 12% year over year to $465 million. The decline is attributable to the divestiture of the U.S. nuclear pharmacies business and lower Specialty Pharmaceuticals and Radiopharmaceuticals sales, which dipped 15% and 36%, respectively. On a positive note, revenues from Active Pharmaceutical Ingredients and Contrast Products rose 3% and 5%, respectively, in the quarter.
The Pharmaceuticals division remains challenged by aggressive competition and pricing pressure which has contributed to erosion in generic products sales. Covidien expects weakness in this segment to persist in fiscal 2011.
Revenues from Medical Supplies segment were flat year over year at $432 million as lower sales of Medical surgical and SharpSafety (offers needles, syringes and disposable products) were offset by higher revenues from Nursing Care and OEM products.
Gross margin for the fourth quarter rose modestly to 54.9% from 54.3% a year-ago, helped by favorable sales mix across the board and synergies from restructuring initiatives which offset the unfavorable foreign exchange translation. Adjusted operating margin improved to 20.5% in the quarter from 20.3% a year ago.
Outlook
Covidien has not provided any updated guidance for fiscal 2011. In September 2010, the company stated that it envisions net sales for the year to budge up 6% to 9% year over year.
The company anticipates revenues from Medical Devices to leap 10% to 13% year over year in fiscal 2011. Revenues from the Medical Supplies unit are expected to be stable to up 3%. However, Covidien foresees sales from its Pharmaceuticals division to decline 5% in fiscal 2011.
Adjusted operating margin for fiscal 2011 has been projected in the range of 21% to 22%. 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 health care products company that develops and markets medical solutions for better patient outcome. 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 fast-growing markets, and boosting market share in core segments through investments in sales and marketing infrastructure.
The acquisition of ev3 in July 2010 has bolstered Covidien’s foothold in the peripheral vascular and neurovascular markets.Moreover, the divestiture of its specialty chemicals and sleep therapy product line has enabled Covidien to rationalize its product portfolio and reallocate resources to faster-growing, higher-margin businesses.
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