Covidien Shares at All-Time Highs as Company Increases Sales Guidance for 2013

Andrew Klips  |

Healthcare products company Covidien plc (COV) reported a slight decline in first-quarter net profits, while GAAP earnings per share edged upward by a penny.  Unfavorable foreign exchange rates that nipped gross margins for the quarter were partially offset by productivity improvements.

With the posting of healthy figures to kick-off the year, coupled with the recent FDA approval of generic Concerta extended-release tablets, Covidien lifted its revenue guidance for 2013.

For the first fiscal quarter, Covidien reported net sales of $3.06 billion, an increase of 5.5 percent from $2.90 billion in the year prior quarter.  Net earnings demurred from $494 million last year to $493 million in the latest quarter, a 0.2 percent decline.  GAAP earnings per share totaled $1.03 in the Q1 fiscal 2013, up from $1.02 in Q1 fiscal 2012.  Excluding one-time items, earnings per share were $1.10 in the latest quarter, down from $1.13 in last year’s quarter.

Analysts were expecting earnings per share of $1.06 on revenue of $3 billion.  Analysts typically base their estimates excluding one-time items.

Adjusted first-quarter 2013 gross margin was 57.5 percent, 1.3 percentage points below that of a year ago.

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“We’re off to a very good start in fiscal 2013, with first-quarter results exceeding our expectations,” said José E. Almeida, Chairman, President and CEO of Covidien. “In our large Medical Devices segment, we continued to generate above-market growth in a number of key categories, including stapling, energy, airway and ventilation. We delivered very strong growth in emerging markets, as we realized the benefits of our recent substantial investments in these fast-growing regions.”

Sales in the company’s Medical Device segment grew to $2.13 billion in the first quarter, an 8 percent increase over the year prior period.

Sales in the Pharmaceutical segment were basically flat compared to last year at $489 million.  Earlier this month, Mallinckrodt, the pharmaceuticals business of Covidien, gained FDA approval to manufacture and sell a generic version of Concerta (methylphenidate HCl) Extended-Release (ER) tablets in 27 mg, 36 mg and 54 mg dosage strengths.  At the time of approval, Covidien said that the launch of the 27 mg dosage would be done immediately, followed by the other strengths soon after.

The company now forecasts net sales for fiscal 2013 will increase by 5 percent to 8 percent, including foreign exchange at current rates.  The new guidance is up from the original estimate of gains of 3 percent to 6 percent.  There was no change to the forecast for operating margin, excluding the impact of one-time items, which is still expected to be in the 22 percent to 23 percent range.

Covidien said it remains on track to spin-off its pharmaceutical business by mid-year and that the transition may have “somewhat of dilutive effect on its guidance,” the additional sales from Concerta ER tablet and underlying strengths of the company will temper any effect.

Shares of COV closed at $61.67 on Thursday, an all-time high for the company.  In the past year, shares are up about 37 percent.

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