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Covidien Posts Loss in First Independent Quarter

The former Tyco subsidiary suffers a $1.2 billion charge in its fiscal third quarter.

Medical device and pharmaceutical company

Covidien

(COV)

-- a spinoff of

Tyco

(TYC)

-- reported its first quarterly results as an independent company Thursday, including a brute settlement charge.

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As part of a Tyco settlement, the company suffered a $1.2 billion charge, which prompted an operating loss of $730 million in the fiscal third quarter, in comparison to income of $557 million in the prior-year period. The company also incurred a $30 million charge for in-process research and development related to the acquisition of Sorbx's AbsorbaTack technology, which is used in hernia repair procedures, and a $5 million restructuring charge.

With the aforementioned charges included, the company reported a pro forma loss of $2.23 a share. Excluding those items, Covidien said it would have earned $512 million, or 67 cents a share.

Analysts surveyed by Thomson Financial had expected the new company to record 70 cents a share in the quarter.

Revenue was just a hair above expectations at $2.579 billion. Medical devices sales increased 9% to $1.6 billion from $1.5 billion in 2006.

Imaging solutions sales climbed 5% to $238 million, vs. $227 million, and pharmaceutical products increased 8% to $333 million from $307 million in the year-ago quarter.

However, the company said that due to the planned withdrawal from several low-margin private-label contracts, infant care volume fell and subsequently retail product sales were 18% lower than last year -- $178 million compared to $217 million. Medical supplies sales also decreased, though less substantially. They were 3% lower -- $247 million from $255 million -- which was attributed to lower sales of original equipment manufacturer (OEM) products, including needles and pre-filled syringes.

Looking ahead, the company maintains guidance of 4% to 6% sales growth for fiscal 2007. And in 2008, the Covidien said it expects sales to climb 3% to 5% excluding the impact of foreign exchange.

Covidien shares closed Thursday down 3.4% at $39.76.