Covidien plc (COV) reported first-quarter fiscal 2015 earnings of $1.11 per share, which beat the Zacks Consensus Estimate by 7 cents. Earnings per share (EPS) also surged 11% from the year-ago quarter.
Quarter Details
Net sales increased 1.8% year over year to $2.69 billion but fell short of the Zacks Consensus Estimate of $2.72 billion. Excluding foreign exchange rate movement, net sales increased 6% on a year-over-year basis, driven by considerable growth in the Surgical Solutions product category.
Surgical solutions sales increased around 4% year over year to $1.31 billion, on the back of 8.8% growth in advanced surgical sales. This was partially offset by a 5.6% decline in sales from general surgical.
Vascular Therapies sales climbed roughly 0.7% to $428 million owing to higher neurovascular sales, partly mitigated by a modest decline in peripheral vascular sales.
Respiratory and Patient Care sales declined about 0.8% to $945 million. Within this product category, patient monitoring sales remained almost flat year over year, while airway & ventilation and nursing care revenues declined 8.8% and 0.8%, respectively. These declines were partially offset by a 3.4% increase in patient care sales.
Gross margin expanded 180 basis points (bps) from the year-ago quarter to 61.2%.
Selling, general & administrative (SG&A) expenses, as percentage of revenues, remained flat on a year-over-year basis at 32.2%. Research & development (R&D) expenses increased 30 bps to 5% in the quarter driven by continuing investment in strategic initiatives.
Adjusted operating margin expanded 200 bps from the year-ago quarter to 24.7%, primarily attributable to a higher gross margin base.
Merger Update
Covidien is currently in the process of being acquired by Medtronic (MDT) for a total cash and stock value of $42.9 billion. The acquisition, announced on Jun 15, 2014, is in its final leg as the deal has obtained all necessary regulatory go-aheads including shareholders’ approval of both companies. As of now, the deal is expected to close in the last week of January or early Feb 2015, subject to the approval of the Ireland High Court.
Zacks Rank
Currently, Covidien carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the medical products industry include ICU Medical (ICUI) and Cardiovascular Systems (CSII). While ICU Medical sports a Zacks Rank #1 (Strong Buy), Cardiovascular Systems carries a Zacks Rank #2 (Buy).
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