Healthcare products company Covidien Plc (COV) reported Tuesday a sharp fall in profit for the fourth quarter, reflecting higher one-time charges as well as unfavorable foreign exchange. Excluding items as well as impact of Oxy ER, adjusted earnings increased from last year. Further, the Dublin, Ireland-based company, a former subsidiary of Tyco International Ltd. (TYC), raised its fiscal 2010 sales growth view.
Fourth-quarter net income was $56 million or $0.11 per share, sharply lower than prior year's $409 million or $0.81 per share.
The latest quarter results included income from discontinued operations of $1 million, while prior year results included loss of $16 million or $0.03 per share. On a continuing operations basis, income fell to $55 million or $0.11 per share from $425 million or $0.84 per share in the same quarter last year.
The fourth-quarter 2009 results included several one-time charges, comprising reclass of discontinued operations of $72 million or $0.14 per share, legal charge of $36 million or $0.07 per share, environmental charge of $32 million or $0.06 per share, loss on divestiture of $17 million or $0.03 per share, in-process research and development charges of $36 million or $0.07 per share, restructuring charges of $30 million or $0.06 per share, and losses on tax matters of $207 million or $0.41 per share. These were partly offset by positive impact of tax sharing agreement of $122 million or $0.24 per share.
The prior year results included restructuring charges of $1 million, and loss on shareholder settlements, net of insurance recovery of $7 million or $0.01 per share, more than offset by positive impact of tax sharing agreement of $12 million or $0.02 per share, and gains on tax matters of $42 million or $0.08 per share.
On an adjusted basis, excluding items, quarterly earnings from continuing operations were $363 million or $0.72 per share, compared to $379 million or $0.75 per share a year ago. The last year's adjusted earnings were $345 million or $0.68 per share, excluding the impact of oxycodone hydrochloride extended-release tablets, or Oxy ER, of $34 million or $0.07 per share.
In the quarter, pre-tax income from continuing operations fell to $392 million from last year's $526 million.
Quarterly net sales edged up to $2.697 billion from $2.690 in the prior year quarter, with unfavorable foreign exchange of $54 million reducing the quarterly sales growth rate by approximately 2 percentage points.
Excluding the comparison of $57 million in fourth-quarter 2008 sales of Oxy ER, fourth-quarter 2009 operational growth, i.e., net sales growth excluding the effect of foreign exchange, was 4%, driven primarily by higher volume, new products and pricing.
Region-wise, net sales from United States dropped 1% to $1.48 billion from last year's $1.50 billion, while non-U.S. Net sales rose 2% to $1.22 billion from $1.19 billion a year ago.
Covidien manufactures, distributes and services a diverse range of product lines in three segments, such as Medical Devices, Pharmaceuticals and Medical Supplies.
In the Medical Devices segment, quarterly sales rose 7% to $1.63 billion from $1.52 billion reported in the same period last year. Operational growth was 9%, reflecting new products and increased volume. Net sales from United States grew 12%, and the growth was 4% in non-U.S. Net sales. Product-wise, net sales from Endomechanical Instruments increased 7% in the quarter, from Energy Devices rose 9%, Oximetry & Monitoring Products sales grew 5%, Airway & Ventilation Products sales edged up 1%, and Vascular Products sales climbed 30%, while sales from Soft Tissue Repair Products dropped slightly.
Pharmaceuticals sales in the quarter totaled $637 million, down 10% from prior year's $708 million. Unfavorable foreign exchange contributed about 2 percentage points to the decrease. Excluding the impact of foreign exchange and Oxy ER, sales were essentially unchanged in the fourth quarter. Net sales in the United States fell 15%, while non-U.S. Net sales rose 2%. Net sales from Other Specialty Pharmaceuticals dropped 18%, Active Pharmaceutical Ingredients net sales declined 5%, and sales from Specialty Chemicals fell 9% in the quarter. Contrast Products' net sales remained unchanged, while radiopharmaceuticals net sales rose 20%, aided by an improved supply situation.
Medical Supplies' fourth-quarter sales dropped 6% to $433 million from last year's $462 million, primarily due to lower sales of Nursing Care, SharpSafety and OEM products. Sales from United States declined 4%, and the fall was 18% in non-U.S. Region.
In the quarter, the company's gross profit dropped to $1.424 billion from last year's $1.433 billion. Gross margin of 52.8% was down 0.5 percentage points from 53.3% in the prior-year period. Adjusted gross profit rose to $1.434 billion from $1.377 billion a year ago, and adjusted gross margin was 53.2%, up 0.9 percentage points from the 2008 adjusted gross margin of 52.3%.
Operating income fell to $308 million or 11.4% of total net sales, from $555 million or 20.6% of total net sales a year ago. Adjusted operating income was $538 million, higher than $519 million in the previous year, and adjusted operating income represented 19.9% of sales, compared to 19.7% a year ago.
In its preceding third quarter, Covidien reported net income of $281 million or $0.56 per share, up from $269 million or $0.53 per share last year. Income from continuing operations was $273 million or $0.54 per share, compared to $331 million or $0.65 per share last year. Adjusted income from continuing operations rose to $375 million or $0.74 per share from $366 million or $0.72 per share in the previous year. Meanwhile, revenues declined 3% to $2.51 billion. Operational growth, which excludes the impact of foreign exchange, was 2%, driven primarily by higher volume and new products.
Among others in the sector, Becton, Dickinson and Co. (BDX) on November 4 posted higher profit for the fourth quarter, bolstered by strong performance at its BD Medical and BD Diagnostics segments. The Franklin Lakes, New Jersey-based medical technology company's net income was $317.2 million, up 12.4% from $282.2 million a year ago. Earnings per share grew 15.2% to $1.29 from $1.12 last year. Income from continuing operations totaled $305.8 million, an increase of 9.6%, and earnings per share from continuing operations rose 12.6% to $1.25. Quarterly revenues advanced 4.7% to $1.89 billion from $1.81 billion in the previous year. Excluding the unfavorable impact from foreign currency translation, revenues increased 8%.
CR Bard Inc. (BCR) reported higher third-quarter net income of $129.5 million or $1.31 per share, compared to $111.2 million or $1.08 per share in the prior-year quarter. Net sales increased 3% to $637.00 million from $616.80 million in the previous year. Excluding the impact of foreign exchange, net sales grew 6% over a year ago.
Medical device maker CR Bard Inc. (BCR) in October reported a 16% rise in third-quarter profit, due to higher sales particularly vascular products and surgical specialties, as well as lower expenses. CR Bard's net income attributable to common shareholders was $129.5 million or $1.31 per share, higher than $111.2 million or $1.08 per share in the prior year. The Murray Hill, New Jersey-based company's third quarter net sales increased 3% to $637.00 million from $616.80 million last year. Excluding the impact of foreign exchange, net sales grew 6% over a year ago.
For the fiscal year 2009, Covidien's net income plunged to $907 million or $1.79 per share from $1.36 billion or $2.70 per share a year ago. Income from continuing operations dropped to $902 million or $1.78 per share from $1.54 billion or $3.04 per share last year. In the year, adjusted income from continuing operations grew to $1.69 billion or $3.35 per share from $1.40 billion or $2.77 per share last year. Excluding impact of Oxy ER, adjusted earnings for the year was $1.434 billion or $2.84 per share, higher than last year's $1.36 billion or $2.70 per share.
Full-year net sales increased 3% to $10.68 billion from $10.36 billion last year, while unfavorable foreign exchange lowered the sales growth rate by approximately 5 percentage points. Sales rose 8% in the United States, but declined 3% outside the U.S. Total company operational growth, excluding the impact of Oxy ER, was 5%.
Commenting on the results, Richard Meelia, Chairman, President and Chief Executive Officer, stated, "We finished fiscal 2009 with a solid performance that was in line with our expectations. Our 2009 results were aided by successful new product launches, market share gains and several strategic acquisitions. We significantly increased R&D spending, made several portfolio management moves to strengthen our business and again generated strong cash flow."
Looking forward to fiscal 2010, Covidien said it is revising guidance upward to reflect the weakening of the U.S. dollar against most currencies, the acquisition of Aspect Medical Systems and the FDA's recent approval of two important new products in its Pharmaceuticals business, such as Oral Transmucosal Fentanyl Citrate and Pennsaid.
The company now estimates that sales in fiscal 2010 will be up 6% to 9%, including foreign exchange at current rates and excluding Oxy ER sales from 2009. In early September, Covidien had said that it expects fiscal 2010 adjusted net sales, excluding the sales of Oxy ER are expected to increase 4% to 7% from 2009 adjusted net sales.
Net sales in the Medical Devices segment are currently projected to increase 9% to 12% from last year, and flat to up 3% in Pharmaceuticals. Previous forecast was net sales growth of 7% to 10% in the Medical Devices segment, while net sales in Pharmaceuticals were projected to be in a range of decline of 2% to up 1% from the 2009 adjusted net sales excluding Oxy ER.
Meanwhile, full-year sales in the Medical Supplies segment are still expected to increase 2% to 5%.
Including foreign exchange at current rates and excluding the impact of one-time items, the operating margin is still expected to be in the 20% to 21% range.
Meelia added, "We are confident that our strong pipeline of new products, aggressive cost control initiatives and recent key strategic investments will drive our continued growth in the coming year and beyond."
COV closed Monday's regular trading session at $44.09, down $0.29, on a volume of 2.6 million shares.
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