Covidien Q3 Adj. Profit Tops View, Revenues Match

(RTTNews) - Medical device maker Covidien Ltd. (COV), which is in a deal to be bought by larger rival Medtronic, Inc. (MDT), reported Friday a profit for the third quarter that decreased from last year, despite sales growth, reflecting significantly lower operating margins. Adjusted earning per share topped analysts' expectations, while quarterly revenues matched their estimates.

Medtronic agreed in mid-June to acquire Covidien in a cash and stock deal valued at about $42.9 billion. The deal is currently expected to close in the fourth calendar quarter of 2014 or early 2015.

"We delivered solid performance in the third quarter, returning to double-digit EPS growth. This performance reflects significant increases in Advanced Surgical, aided by global market share gains in vessel sealing and stapling. Substantial growth in both our gastrointestinal and interventional lung offerings, as well as productivity improvements, also contributed to this positive result," Chairman, President and CEO José Almeida said in a statement.

The Dublin, Ireland-based company reported net income of $306 million or $0.67 per share for the third quarter, lower than $396 million or $0.84 per share in the prior-year quarter.

Income from continuing operations for the quarter declined to $0.67 per share from $0.85 per share last year.

Excluding special items, adjusted income from continuing operations was $474 million or $1.04 per share, compared to $427 million or $0.91 per share in the year-ago quarter.

On average, 19 analysts polled by Thomson Reuters expected the company to report earnings of $1.00 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter increased 4 percent to $2.69 billion from $2.58 billion in the same quarter last year, and matched seventeen Wall Street analysts' consensus estimate of $2.69 billion.

Medical devices sales were up 5 percent to $2.30 billion while U.S. medical supplies edged down 1 percent to $386 million from last year.

Total domestic sales for the quarter were $1.33 billion, up 3 percent from the prior-year quarter, emerging market sales increased 8 percent to $415 million, and non-U.S. developed markets sales grew 4 percent to $948 million from the year-ago quarter.

Surgical solutions sales grew 8 percent from last year to $1.31 billion, as well as respiratory and patient care sales improved 2 percent from last year to $966 million, while sales for vascular therapies remained flat with last year at $417 million.

Operating margin for the quarter contracted 740 basis points to 13.6 percent from last year's 21.0 percent, as gross profit margin declined 60 basis points, and selling, general and administrative expenses, as a percentage of total sales, increased 540 basis points.

COV closed Thursday's regular trading session at $89.10, up $0.02 on a volume of 6.27 million shares.