International medical technology giant Covidien plc (COV) reported second-quarter fiscal 2011 (ended March 25) adjusted earnings per share (from continuing operation) of 93 cents, topping the Zacks Consensus Estimate of 89 cents and surpassing the year-ago earnings of 86 cents. Adjusted earnings exclude one-time items such as inventory and restructuring charges.
Net income (from continuing operation) shot up 9% year over year to $459 million (or 92 cents a share) buoyed by higher sales from the Ireland-based company’s Medical Devices (notably vascular) business.
Net sales climbed 10% year over year to $2,801 million, also exceeding the Zacks Consensus Estimate of $2,747 million. Double-digit growth in the Medical Devices business was partly ebbed by the sustained decline at the Pharmaceuticals division.
Segment Analysis
Revenues from Medical Devices spiked 16% year over year to $1.88 billion on the heels of healthy growth across Vascular and Energy Devices product-lines, backed by acquisitions and new products. While hospital admissions remained choppy, volume for select procedures improved in the quarter.
Within medical devices, Endomechanical Instruments sales rose 7% to $557 million, boosted by double-digit growth in stapling products (including Tri-Staple). Revenues from the Vascular business zoomed 103%, buoyed by the eV3 acquisition.
Energy Devices sales surged 17% to $283 million riding on solid vessel sealing sales. Revenues from Soft Tissue Repair products increased 3% to $220 million as growth in the suture business was partly offset by lower biosurgery sales.
Oximetry and Monitoring revenues (up 9% to $211 million) were boosted by higher sales of sensors and monitors, aided by the acquisition of monitoring equipment makers Aspect Medical and Somanetics. Airway and Ventilation products sales slipped 7% to $185 million, partly due to the divestiture of the sleep therapy product line and lower ventilator sales.
Sales from Covidien’s struggling Pharmaceuticals division, which remains engulfed in aggressive price competition, clipped 4% to $490 million. The decline is attributable to the divestiture of the U.S. nuclear pharmacy business. However, the results were in line with the company’s expectations.
Within Pharmaceuticals, revenues from Active Pharmaceutical Ingredients rose 8% to $121 million on the back of higher acetaminophen sales. Contrast Products sales rose 5% to $154 million, supported by strong international growth. Specialty Pharmaceuticals sales edged up 1% to $106 million. Within this category, generic product sales increased modestly, helped by stabilization in pricing and launch of the fentanyl patch.
Revenues from the company’s Medical Supplies segment rose 3% to $434 million attributable to higher revenues of medical surgical and nursing care product lines.
Margin Trend
Gross margin remained stable year over year at 57%. On an adjusted basis, gross margin improved modestly to 57.3% as favorable business mix, portfolio realignment and synergies from restructuring efforts were partly marred by unfavorable foreign exchange movements. Adjusted operating margin rose to 22.2% from 22.4% a year ago.
Guidance Raised
Based on its healthy performance during first-half fiscal 2011 and favorable foreign exchange rates, Covidien has raised its revenue, operating margin and cash flow guidance for fiscal 2011. The company now envisions net sales for the year to grow 8% to 11% year over year versus its prior forecast of 6% to 9%.
Medical Devices sales are forecasted to grow 13% to 16% year over year, an increase of 300 basis points from the previous guidance. Pharmaceuticals sales are expected to be down 3% to flat while Medical Supplies revenues are projected to be flat to up 3%.
Adjusted operating margin for the year now has been projected in the range of 21.5% to 22.5%, up from the earlier projection of 21% to 22%. Free cash flow is now forecasted to be at least $1.7 billion versus prior guidance of $1.6 billion.
The company has revised its estimated effective tax rate, which is now expected be between 18.5% to 19.5% vis-
Be the first to comment