UBLIN, Ireland, Nov 09, 2010 (BUSINESS WIRE) -- Covidien plc /quotes/comstock/13*!cov/quotes/nls/cov (COV 42.15, +0.80, +1.94%) today reported results for the fourth quarter of fiscal 2010 (July - September 2010). Fourth-quarter net sales of $2.67 billion increased 3% from the $2.59 billion reported a year ago, with foreign exchange rate movement reducing the quarterly sales growth rate by approximately one percentage point.
Fourth-quarter 2010 gross margin of 54.9% rose 0.6 percentage points from the 54.3% of the prior-year period. On an adjusted basis, fourth-quarter 2010 gross margin of 56.2% was 1.9 percentage points above that of a year ago. This improvement reflected positive mix in all three business segments, portfolio moves and benefits from our restructuring program, partially offset by unfavorable foreign exchange.
Selling, general and administrative expenses for the fourth quarter of 2010 were slightly below those of the comparable quarter of the year before. Research and Development (R&D) expense in the fourth quarter climbed 18% and represented 4.7% of net sales, versus 4.1% of sales in the year-ago period.
In the fourth quarter of 2010, the Company reported operating income of $443 million, versus $314 million in the same period the year before. Fourth-quarter 2010 adjusted operating income, excluding the specified items shown on the attached quarterly Non-GAAP reconciliations table, was $547 million, compared with $526 million in the previous year. Fourth-quarter 2010 adjusted operating income, excluding the specified items, represented 20.5% of sales, versus 20.3% a year ago.
As a result of tax planning strategies implemented in the fourth quarter of 2010, the Company received a tax benefit in the quarter, versus an effective tax rate of 68.8% in the fourth quarter of 2009. The fourth-quarter 2010 adjusted tax rate, excluding specified items, was 15.3%, versus 26.7% in the fourth quarter a year earlier.
Diluted GAAP earnings per share from continuing operations were $0.77 in the fourth quarter of 2010, versus $0.25 per share in the comparable quarter last year. Fourth-quarter 2010 adjusted diluted earnings per share, excluding specified items, were $0.84, versus $0.71 a year ago, an 18% increase.
For fiscal 2010, net sales of $10.43 billion were 2% above the $10.26 billion in fiscal 2009, with favorable foreign exchange increasing the sales growth rate by approximately two percentage points. On an adjusted basis, excluding sales of oxycodone hydrochloride extended-release tablets (Oxy ER) from the 2009 base, net sales were 5% higher than those of the prior year. Favorable foreign exchange increased the sales growth rate by approximately two percentage points.
The Company reported operating income of $2.06 billion in fiscal 2010, versus $1.81 billion a year earlier. Fiscal 2010 adjusted operating income, excluding the specified items shown on the attached Non-GAAP reconciliations table, was $2.26 billion, versus $2.03 billion in the previous year, a gain of 12%. Excluding the specified items and Oxy ER in 2009, fiscal 2010 adjusted operating income represented 21.7% of sales, versus 20.4% the year before.
The effective tax rate was 18.8% for fiscal 2010, versus 47.9% in fiscal 2009. Excluding the specified items, the adjusted tax rate for 2010 was 19.5%, versus 25.9% in fiscal 2009.
For fiscal 2010, diluted GAAP earnings per share from continuing operations were $3.10, versus $1.86 for fiscal 2009. Excluding the specified items and Oxy ER in 2009, adjusted diluted earnings per share from continuing operations were $3.38, versus $2.78 a year ago, a 22% increase.
“We finished fiscal 2010 by again delivering improvement in our quarterly gross and operating margins, combined with double-digit earnings growth,” said Richard J. Meelia, Chairman, President and CEO. “This solid performance was led by our largest business segment, Medical Devices, which posted another good quarter paced by strong gains in Vascular, Oximetry & Monitoring and Energy products.
“During 2010, we made significant progress in reshaping our portfolio, acquiring Aspect, ev3 and Somanetics, all of which are meeting or exceeding our expectations. We divested the Specialty Chemicals business, U.S. nuclear pharmacies, and sleep and oxygen product lines, reallocating resources to faster growing areas of our business. We launched more than 20 new products, including Tri-Staple(TM), LigaSure(TM) 5, TaperGuard(TM) and EXALGO(R), all of which are doing well in the marketplace,” Mr. Meelia said, adding that “Although the market environment remains challenging, we are confident that our robust pipeline of new offerings, portfolio additions and strategic investments funded by our strong cash flow will drive positive operational results in 2011 and beyond.”
BUSINESS SEGMENT RESULTS
Medical Devices sales of $1.77 billion in the fourth quarter were 9% above the $1.63 billion in the comparable quarter of last year. Operational growth (net sales growth, excluding the effect of foreign exchange) was 10%, reflecting acquisitions, new products and increased volume, partially offset by divestitures. Operationally, fourth-quarter sales in Endomechanical advanced, driven by higher sales of stapling and laparoscopic products. In Soft Tissue Repair, biosurgery and fixation both registered good growth, while sales of mesh increased, though at a slower rate than in past quarters. The Energy double-digit quarterly sales gain was again due to a sharp rise in sales of vessel sealing products. In the Oximetry & Monitoring product line, double-digit sales gains were primarily due to the Aspect acquisition. In Airway & Ventilation, sales were below those of a year ago, primarily due to the divestiture of the sleep product line, coupled with lower ventilator sales due to difficult comparisons with last year’s flu-related volume. Vascular sales climbed more than 70%, reflecting the addition of ev3 products and double-digit increases for venous insufficiency and compression products. ev3’s sales and profitability performance in the quarter exceeded our expectations and, as a result, the acquisition was only slightly dilutive to earnings per share.
For fiscal 2010, Medical Devices sales rose 11% to $6.72 billion from $6.06 billion in the prior year. Favorable foreign exchange contributed approximately three percentage points to the increase.
Pharmaceuticals sales of $465 million in the fourth quarter were down 12% from last year’s fourth-quarter sales of $530 million. The decline primarily reflected the sale of the U.S. nuclear pharmacies business in the third quarter, coupled with a sales decline in Specialty Pharmaceuticals. Fourth-quarter sales of Contrast Products were above those of a year ago, primarily due to customer order patterns. Sales of Active Pharmaceutical Ingredients in the quarter increased somewhat from the year-before level, in part due to higher narcotic product sales. In Specialty Pharmaceuticals, generic sales declined, reflecting increased competitive activity which drove lower pricing versus a year ago. Compared with the third quarter 2010, however, generic pricing stabilized. In branded pharmaceuticals, sales of EXALGO and PENNSAID(R) did not offset a significant decline for Restoril and Tofranil that was related to competition from generics. Excluding the divestiture of the U.S. nuclear pharmacies business, sales of Radiopharmaceuticals were below those of a year ago, partially due to lower thallium sales.
Pharmaceuticals sales of $1.99 billion in fiscal 2010 decreased 5% from last year’s $2.10 billion.
Medical Supplies fourth-quarter sales of $432 million were essentially unchanged from the $433 million reported in the comparable quarter of the previous year, as increased sales of Nursing Care and OEM products offset lower sales of Medical Surgical and SharpSafety products. For fiscal 2010, sales of Medical Supplies, at $1.72 billion, were 2% below last year’s $1.75 billion.
In the fourth quarter of 2010, Covidien purchased approximately 6.6 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 2010 revenue of $10.4 billion, Covidien has approximately 42,000 employees worldwide in more than 60 countries, and its products are sold in over 140 countries. Please visit www.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 three ways:
At Covidien’s website: http://investor.covidien.com By telephone: For both “listen-only” participants and those participants who wish to take part in the question-and-answer portion of the call, the telephone dial-in number in the U.S. is 800-659-2056. For participants outside the U.S., the dial-in number is 617-614-2714. The access code for all callers is 67108093. Through an audio replay: A replay of the conference call will be available beginning at 11:30 a.m. on November 9, 2010, and ending at 5:00 p.m. on November 16, 2010. The dial-in number for U.S. participants is 888-286-8010. For participants outside the U.S., the replay dial-in number is 617-801-6888. The replay access code for all callers is 25423270.
NON-GAAP FINANCIAL MEASURES
This press release contains financial measures, including operational growth, adjusted net sales, 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.
The Company excludes the one-time impact of Oxy ER from its fiscal 2009 net sales to give investors a better perspective on its base business operations. Sales of Oxy ER in 2009 were $354 million.
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, 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 or potential environmental liabilities. These and other factors are identified and described in more detail in our filings with the SEC. We disclaim any obligation to update these forward-looking statements other than as required by law.
