(MENAFN Press) DUBLIN - Monday, November 12th 2012
Covidien plc (NYSE: COV) today reported results for the fourth quarter of fiscal 2012 (July - September 2012). Fourth-quarter net sales of 3.00 billion were 3% lower than the 3.08 billion reported in the fourth quarter last year. The reported quarterly sales growth rate reflected unfavorable foreign exchange rate movement, which decreased the rate by about three percentage points, and the inclusion of an extra selling week in the fourth quarter of 2011, which reduced the rate by seven to eight percentage points.
Fourth-quarter 2012 gross margin of 55.6% declined 0.9 percentage points from the 56.5% of the prior-year period. On an adjusted basis, excluding the specified items shown on the attached quarterly Non-GAAP reconciliations table, fourth-quarter 2012 gross margin of 56.5% was 0.2 percentage points below that of a year ago. The decline was largely due to unfavorable foreign exchange rate movement, partially offset by positive business mix and manufacturing cost reduction activities.
Selling, general and administrative expenses for the fourth quarter of 2012 were slightly lower than those of the comparable quarter of the year before, reflecting the additional week and higher legal charges in the year-ago period. Research and development (R&D) expense in the fourth quarter of 2012 represented 5.1% of net sales, versus 5.4% of sales in the fourth quarter a year ago.
In the fourth quarter of 2012, the Company reported operating income of 552 million, versus 596 million in the same period the year before. Fourth-quarter 2012 adjusted operating income, excluding specified items on the attached table, was 635 million, compared with 685 million in the prior year. Fourth-quarter 2012 adjusted operating income, excluding the specified items, represented 21.2% of sales, versus 22.3% of sales in the year-ago period.
The fourth-quarter 2012 effective tax rate was 9.2%, versus an effective tax rate of 19.7% in the fourth quarter of 2011. The fourth-quarter 2012 adjusted tax rate, excluding specified items on the attached table, was 17.3%, versus 18.2% in the fourth quarter last year.
Diluted GAAP earnings per share from continuing operations were 0.96 in the fourth quarter of 2012, versus 0.93 per share in the comparable quarter of 2011. Fourth-quarter 2012 adjusted diluted earnings per share, excluding specified items on the attached table, were 1.02, versus 1.08 a year earlier.
For fiscal 2012, net sales of 11.85 billion were 2% above the 11.57 billion in the previous year. The fiscal 2012 sales growth rate was reduced by two percentage points due to unfavorable foreign exchange rate movement, and by another approximately two percentage points attributable to the inclusion of an extra selling week in fiscal 2011.
The Company reported operating income of 2.41 billion in fiscal 2012, versus 2.38 billion a year ago. Fiscal 2012 adjusted operating income, excluding the specified items on the attached table, was 2.67 billion, versus 2.57 billion in the previous year. Fiscal 2012 adjusted operating income, excluding specified items, represented 22.5% of sales, versus 22.2% last year.
The effective tax rate was 15.4% for fiscal 2012, versus an effective tax rate of 15.0% in 2011. Excluding the specified items on the attached table, the adjusted tax rate for 2012 was 17.3%, versus 18.3% in 2011.
Fiscal 2012 diluted GAAP earnings per share from continuing operations were 3.92, versus 3.79 in 2011. Excluding the specified items on the attached table, adjusted diluted earnings per share from continuing operations were 4.26 in fiscal 2012, versus 3.97 last year, a 7% increase.
"We delivered a solid performance in the fourth quarter, finishing 2012 in line with our expectations. Reported results were restrained by the strength of the U.S. dollar against most foreign currencies and by the anomaly of an extra selling week in the fourth quarter of 2011," said Jos E. Almeida, Chairman, President and CEO. "In Medical Devices, our largest business segment, we continued to generate above-market growth, paced by new offerings that included the Sonicision„ cordless ultrasonic dissection device, Solitaire„ FR revascularization device and the Pipeline embolization device.
"We made significant progress reshaping our portfolio in 2012. We announced the spinoff of the Pharmaceuticals business, while adding more than 4 billion in new market opportunities through acquisitions that offer excellent growth prospects," Mr. Almeida added. "We ramped up R&D investment, launched over 25 new products and implemented a number of productivity initiatives to fund future growth. We again delivered outstanding sales gains in emerging markets, as we begin to reap the benefits of multi-year investments to expand our sales and marketing presence in these fast-growing regions.
"Looking to fiscal 2013, we remain comfortable with the sales and operating margin guidance we issued in September. Despite the headwinds of today's market environment and the U.S. medical device tax, we are confident that our robust pipeline of new products, attractive investment opportunities and capital flexibility will enable us to meet marketplace challenges and deliver good organic growth."
BUSINESS SEGMENT RESULTS
Medical Devices sales of 2.06 billion in the fourth quarter were 1% lower than the 2.09 billion in the comparable quarter of last year. Operational sales growth in the quarter was 2%, as foreign exchange rate movement reduced the quarterly sales growth rate by three percentage points. As stated earlier, sales were also negatively impacted by the extra selling week in the year-ago period. Operationally, fourth-quarter sales in Endomechanical were below those of a year ago. Strong gains for our innovative Tri-Staple„ reloads were more than offset by lower sales of surgical instruments, reflecting price pressures and the impact of the Duet TRS„ recall. In Soft Tissue Repair, higher mesh and biosurgery sales countered a decline for mechanical fixation products, which continue to face marketplace headwinds. Energy registered another double-digit quarterly sales advance, largely due to the continued strong performance of vessel sealing products. In Oximetry & Monitoring, operational sales were above those of last year's fourth quarter, aided by higher sales of sensors and monitors. Airway & Ventilation sales were also ahead of the year-ago quarter, chiefly reflecting a double-digit increase for ventilators. Vascular products posted a sales gain, paced by exceptional growth for neurovascular products.
For fiscal 2012, Medical Devices sales rose 4% to 8.11 billion from 7.83 billion a year ago, led by higher sales of Vascular and Energy products. Foreign exchange rate movement lowered the sales growth rate by two percentage points.
Pharmaceuticals sales of 502 million in the fourth quarter were down 1% from last year's fourth-quarter sales of 507 million. Operational sales growth in the quarter was 2%, as foreign exchange rate movement reduced the quarterly sales growth rate by three percentage points. Pharmaceuticals results were also negatively impacted by the extra selling week in the year-ago period. Sales of Specialty Pharmaceuticals climbed sharply from those of a year ago, primarily due to the strong performance of EXALGO (hydromorphone HCl). Operationally, sales of Active Pharmaceutical Ingredients were above those of the fourth quarter of 2011, led by higher sales of peptides. Sales of Contrast Products in the quarter were below those of the year before, chiefly due to continued weakness in the United States, particularly for devices. Quarterly sales of Radiopharmaceuticals declined, compared with the prior-year period, reflecting lower sales in the Unites States and Europe.
For fiscal 2012, Pharmaceuticals sales advanced 2% to 2.00 billion from 1.97 billion a year ago. The growth was largely attributable to a 16% increase for Specialty Pharmaceuticals. Foreign exchange rate movement lowered the sales growth rate by one percentage point.
Medical Supplies fourth-quarter sales of 439 million fell 9% from 481 million in the comparable quarter of 2011, due to broad-based declines in all four product lines primarily reflecting the extra selling week in the year-ago period.
For fiscal 2012, sales of Medical Supplies, at 1.74 billion, were 2% below the 1.78 billion of 2011, reflecting lower sales of SharpSafety„ and OEM products. Foreign exchange rate movement lowered the sales growth rate by one percentage point.
In the fourth quarter of 2012, Covidien purchased approximately 9.6 million ordinary shares under its previously announced share buyback program.
ABOUT COVIDIEN
Covidien is a leading global healthcare products company that creates innovative medical solutions for better patient outcomes and delivers value through clinical leadership and excellence. Covidien manufactures, distributes and services a diverse range of industry-leading product lines in three segments: Medical Devices, Pharmaceuticals and Medical Supplies. With 2012 revenue of 11.9 billion, Covidien has 43,000 employees worldwide in 70 countries, and its products are sold in over 140 countries. Please visitwww.covidien.com to learn more about our business.
CONFERENCE CALL AND WEBCAST
The Company will hold a conference call for investors today, beginning at 8:30 a.m. ET. This call can be accessed via:
Covidien's website: http://investor.covidien.com
NON-GAAP FINANCIAL MEASURES
This press release contains financial measures, including operational growth, adjusted gross margin, adjusted operating income, adjusted earnings per share and adjusted operating margin, which are considered "non-GAAP" financial measures under applicable Securities & Exchange Commission rules and regulations.
These non-GAAP financial measures should be considered supplemental to and not a substitute for financial information prepared in accordance with generally accepted accounting principles. The Company's definition of these non-GAAP measures may differ from similarly titled measures used by others.
The non-GAAP financial measures used in this press release adjust for specified items that can be highly variable or difficult to predict. The Company generally uses these non-GAAP financial measures to facilitate management's financial and operational decision-making, including evaluation of Covidien's historical operating results, comparison to competitors' operating results and determination of management incentive compensation. These non-GAAP financial measures reflect an additional way of viewing aspects of the Company's operations that, when viewed with GAAP results and the reconciliations to corresponding GAAP financial measures, may provide a more complete understanding of factors and trends affecting Covidien's business.
Because non-GAAP financial measures exclude the effect of items that will increase or decrease the Company's reported results of operations, management strongly encourages investors to review the Company's consolidated financial statements and publicly filed reports in their entirety. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is included in the tables accompanying this release.
FORWARD-LOOKING STATEMENTS
Any statements contained in this communication that do not describe historical facts may constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein are based on our management's current beliefs and expectations, but are subject to a number of risks, uncertainties and changes in circumstances, which may cause actual results or Company actions to differ materially from what is expressed or implied by these statements.
The factors that could cause actual future results to differ materially from current expectations include, but are not limited to, our ability to effectively introduce and market new products or keep pace with advances in technology, the reimbursement practices of a small number of large public and private insurers, cost-containment efforts of customers, purchasing groups, third-party payors and governmental organizations, intellectual property rights disputes, complex and costly regulation, including healthcare fraud and abuse regulations and the Foreign Corrupt Practices Act, manufacturing or supply chain problems or disruptions, rising commodity costs, recalls or safety alerts and negative publicity relating to Covidien or its products, product liability losses and other litigation liability, divestitures of some of our businesses or product lines, our ability to execute strategic acquisitions of, investments in or alliances with other companies and businesses, competition, risks associated with doing business outside of the United States, foreign currency exchange rates and environmental remediation costs. These and other factors are identified and described in more detail in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011, and in subsequent filings with the SEC. We disclaim any obligation to update these forward-looking statements other than as required by law.
