Business News

Covidien Reports Third-Quarter 2008 Results

2008-08-05 05:00:00

Covidien Reports Third-Quarter 2008 Results

Third-quarter net sales up 14%, led by double-digit increases in

Medical Devices, Imaging Solutions and Pharmaceutical Products

Third-quarter diluted GAAP earnings per share from continuing

operations were $0.65; excluding specified items, adjusted diluted

earnings per share from continuing operations were $0.72

HAMILTON, Bermuda–(EMWNews)–Covidien Ltd. (NYSE: COV; BSX: COV) today reported results for the third

quarter of fiscal 2008 (April June 2008).

Third-quarter net sales rose 14% to $2.6 billion from $2.3 billion a

year ago, fueled by strong growth in the Medical Devices, Imaging

Solutions and Pharmaceutical Products business segments. Sales growth

was driven by higher volume and new products. Favorable foreign exchange

contributed 5 percentage points to the sales increase. All International

regions — Europe, Japan, Other Americas and Asia-Pacific — reported

strong double-digit sales gains.

Third-quarter gross margin of 53.7% was up 1.5 percentage points from

that of the prior year. This substantial improvement reflected positive

mix, aided by the incremental investments made to grow our higher-margin

businesses, and favorable foreign exchange.

Selling, general and administrative expenses were significantly higher

than in the third quarter of last year. The increase was attributable to

planned growth in selling and marketing investments, foreign exchange

and higher administrative costs. Research and Development (R&D) expense

in the quarter was up 33% over the prior year and represented 3.3% of

sales.

For the third quarter, the Company reported operating income of $545

million, versus an operating loss of $761 million a year ago.

Third-quarter adjusted operating income, excluding specified items shown

in the attached table, was $563 million, versus $481 million in the

third quarter of the prior year. Third-quarter adjusted operating income

represented 21.7% of sales, versus 21.2% a year ago.

The third-quarter effective tax rate was 36.3%. Excluding the specified

items shown in the attached table, the third-quarter tax rate was 30.8%.

The rate was unfavorably impacted by several adjustments related to

legacy income tax liabilities.

Third-quarter diluted GAAP earnings per share from continuing operations

were $0.65, versus a loss of $2.29 per share in the third quarter of

last year. The third quarter non-GAAP diluted earnings per share,

excluding specified items shown in the attached table, were $0.72,

versus $0.64 a year ago.

For the first nine months of fiscal 2008, net sales of $7.3 billion were

11% above the $6.6 billion in the prior year, with favorable foreign

exchange contributing 5 percentage points to the sales increase.

The Company reported operating income of $1.4 billion in the first nine

months of fiscal 2008 versus $199 million a year ago. Nine-month

adjusted operating income, excluding specified items shown in the

attached table, was $1.54 billion, representing 20.9% of sales, versus

$1.47 billion and 22.3% of sales a year ago.

The effective tax rate was 30.1% for the first nine months of fiscal

2008. Excluding the specified items shown in the attached table, the tax

rate for the nine months was 29.9%.

For the first nine months, diluted GAAP earnings per share from

continuing operations were $2.03, versus a loss of $0.86 per share in

the prior year. The nine-month 2008 non-GAAP diluted earnings per share,

excluding specified items shown in the attached table, were $1.97,

versus $2.01 a year ago.

We were very pleased with our third-quarter

performance, as sales and operating results came in somewhat above our

expectations, said President and Chief

Executive Officer Richard J. Meelia. We

again achieved strong results in our International markets, where we

continue to benefit from the incremental investments weve

made over the last few years to augment our sales force and expand

geographically.

We are on pace to meet our 2008 financial

goals, with market share gains and new product launches driving our

strong performance, Mr. Meelia said, adding

that, Our strategic investments in R&D,

selling and marketing put the Company in an excellent position to

achieve our growth objectives for the remainder of 2008 and beyond.

Results by business segment follow.

Medical Devices sales climbed 15% in the third quarter to $1.8

billion from $1.5 billion in the third quarter of the previous year. The

sales gain was driven by favorable foreign exchange, which contributed 7

percentage points to the increase, as well as by new products and higher

volume. Sales in Endomechanical were well above those of a year ago,

paced by sharply higher sales of laparoscopic instruments. Energy

registered strong double-digit growth in the quarter, due to higher

sales of vessel sealing, electrosurgery and hardware products, including

Force Triad, LigaSure Impact and Hand Switching Atlas. Sales in Soft

Tissue Repair were up significantly, aided by higher suture sales and

strong U.S. performance for mesh products.

For the first nine months of fiscal 2008, Medical Devices sales grew 13%

to $5.0 billion from $4.5 billion a year ago. Favorable foreign exchange

contributed 7 percentage points to the sales advance.

Imaging Solutions sales rose 18% to $319 million, compared

with $271 million in the prior years third

quarter. Favorable foreign exchange contributed 5 percentage points to

the sales increase. Sales growth in the quarter was broad-based, as both

Radiopharmaceuticals and Contrast Products delivered gains at a strong

double-digit pace. The Radiopharmaceuticals increase was paced by good

performance in the United States, while Contrast Products benefited from

higher volume in Europe, Asia and Latin America, which more than offset

pricing pressures in the U.S.

For the nine months, Imaging Solutions sales climbed 16% to $914

million, versus $786 million the year before. Favorable foreign exchange

contributed 4 percentage points to the sales increase.

Pharmaceutical Products sales in the third quarter of $257

million were 13% above the prior years $228

million. Growth was attributable to a double-digit increase in sales of

Dosage products, reflecting gains by both generic and branded

pharmaceuticals, coupled with higher sales of Active Pharmaceutical

Ingredients, led by peptide products.

For the nine months, Pharmaceutical Products sales were up 4% to $717

million from $692 million last year.

Medical Supplies sales grew 8% to $238 million from $221 million

in the third quarter of the previous year. The increase was primarily

due to higher sales of OEM and Nursing Care products.

For the nine months, Medical Supplies sales, at $675 million, were 2%

above last years $664 million.

ABOUT COVIDIEN LTD.

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 four segments: Medical Devices, Imaging Solutions,

Pharmaceutical Products and Medical Supplies. With 2007 revenue of

nearly $9 billion, Covidien has more than 42,000 employees worldwide in

57 countries, and its products are sold in over 130 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:

  • Web Go to Covidiens

    website at www.covidien.com. A

    replay of the call will be available through August 12 at the same

    website.

  • Telephone The dial-in number for

    participants in the United States is (866)-578-5771. For participants

    outside the United States, the dial-in number is (617)-213-8055. The

    access code for both numbers is 29184514.

  • Audio replay The conference call will be

    available for replay, beginning at 10:30 a.m. ET on August 5, 2008,

    and ending at 11:59 p.m. on August 12, 2008. The dial-in number for

    participants in the United States is (888)-286-8010. For participants

    outside the United States, the replay dial-in number is

    (617)-801-6888. The replay access code for all callers is 23070456.

NON-GAAP FINANCIAL MEASURES

This press release contains financial measures, including adjusted

operating income, adjusted earnings per share and adjusted operating

margin, that 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 Companys 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

managements financial and operational

decision-making, including evaluation of Covidiens

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 Companys

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 Companys

reported results of operations, management strongly encourages investors

to review the Companys 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 press release 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 managements

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

payers and governmental organizations, intellectual property rights

disputes, complex and costly regulation, including healthcare fraud and

abuse regulations, manufacturing or supply chain problems or

disruptions, 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, potential environmental liabilities or

increased costs after the separation from Tyco International or as a

result of the separation. 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.

Covidien Ltd.

Consolidated and Combined Statements of Operations

Quarters Ended June 27, 2008 and June 29, 2007

(in millions, except per share data)

 

 

 

 

 

 

Quarter Ended

Percent of

Quarter Ended

Percent of

June 27, 2008

Net Sales

 

June 29, 2007

Net Sales

 

 

Net sales

$

2,595

100.0

%

$

2,269

100.0

%

Cost of products sold

 

1,202

 

46.3

 

1,085

 

47.8

Gross profit

1,393

53.7

1,184

52.2

 

Selling, general and administrative expenses

745

28.7

639

28.2

Research and development expenses

85

3.3

64

2.8

In-process research and development charges

10

0.4

30

1.3

Restructuring and related impairment charges

4

0.2

5

0.2

Class action and shareholder settlement, net of insurance recoveries

 

4

 

0.2

 

1,207

 

53.2

Operating income (loss)

545

21.0

(761

)

(33.5

)

 

Interest expense

48

1.8

46

2.0

Interest income

(10

)

(0.4

)

(8

)

(0.4

)

Other (income) expense, net

 

(13

)

(0.5

)

 

156

 

6.9

Income (loss) from continuing operations before income taxes

520

20.0

(955

)

(42.1

)

 

Income taxes

 

189

 

7.3

 

180

 

7.9

Income (loss) from continuing operations

331

12.8

(1,135

)

(50.0

)

 

Loss (income) from discontinued operations, net of income taxes

 

62

 

2.4

 

(27

)

(1.2

)

Net income (loss)

$

269

 

10.4

$

(1,108

)

(48.8

)

 

Basic earnings per share:

Income (loss) from continuing operations

$

0.66

$

(2.29

)

Loss (income) from discontinued operations

0.12

(0.06

)

Net income (loss)

0.54

(2.23

)

 

Diluted earnings per share:

Income (loss) from continuing operations

$

0.65

$

(2.29

)

Loss (income) from discontinued operations

0.12

(0.06

)

Net income (loss)

0.53

(2.23

)

 

Weighted-average number of shares outstanding: (1)

Basic

500

497

Diluted

505

497

 

(1) For the quarter ended June 29,

2007, the common shares outstanding immediately following the

Separation were used to calculate basic and diluted earnings per

share because no common shares, share options or restricted shares

of Covidien were outstanding on or before June 29, 2007.

 

Covidien Ltd.

Non-GAAP Reconciliations

Quarters Ended June 27, 2008 and June 29, 2007

(dollars in millions, except per share data)

 

 

 

 

Quarter Ended June 27, 2008

Operating income

Income from continuing operations before income taxes

Income from continuing operations

Diluted earnings per share from continuing operations

 

GAAP

$

545

$

520

$

331

$

0.65

Adjustments:

In-process research and development charges (1)

10

Covidien Ltd.
Eric Kraus, 508-261-8305
Senior Vice President
Corporate

Communications
[email protected]
or
Coleman

Lannum, CFA, 508-452-4343
Vice President
Investor Relations
[email protected]
or
Bruce

Farmer, 508-452-4372
Vice President
Public Relations
[email protected]
or
Wayde

McMillan, 508-452-4387
Director
Investor Relations
[email protected]

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Blake Masterson

Freelance Writer, Journalist and Father of 5

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