Covidien Reports Third-Quarter Fiscal 2014 Results

Covidien plc (NYSE: COV) today announced financial results for the third quarter of fiscal 2014. Third-quarter net sales of $2.69 billion increased 4%, both on a reported and on an operational basis, from the $2.58 billion in the third quarter a year ago.

“We delivered solid performance in the third quarter, returning to double-digit EPS growth,” said José E. Almeida, chairman, president and CEO, Covidien. “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.”

Covidien continued to execute on its strategy of innovation, customer-focused portfolio management, emerging markets growth and driving operational leverage. Recent highlights include:
  • Launching the EverFlex™ Self-expanding Peripheral Stent with Entrust™ Delivery System in Australia and New Zealand and the next-generation Trellis™ Peripheral Infusion System for treatment of deep vein thrombosis in the U.S., Europe and Canada
  • Introducing both the Pipeline™ Flex Embolization Device and Nellcor™ Respiration Rate System in Europe
  • Receiving U.S. Food and Drug Administration approval of the Apollo™ Onyx™ Delivery Micro Catheter with Detachable Tip and the Emprint™ Ablation System with Thermosphere Technology
  • Opening a Covidien Center of Innovation in Turkey, the company’s fourth medical training and research center in an emerging market

Third-quarter 2014 gross margin of 58.9% declined 0.6 percentage points from 59.5% in the prior-year period. On an adjusted basis, excluding the specified items shown on the attached tables containing non-GAAP reconciliations, third-quarter 2014 gross margin of 59.4% was about level with a year ago.

Selling, general and administrative (SG&A) expenses for the third quarter of 2014 were above those of the prior-year quarter, largely due to a legal charge recorded during the current quarter related to an increase in the company’s estimated indemnification obligation for certain pelvic mesh products liability cases. On an adjusted basis, SG&A as a percent of sales decreased approximately 130 basis points primarily due to productivity improvements, partially offset by increased expenses resulting from acquisitions and spending on growth initiatives. Research and development (R&D) expenses in the third quarter of 2014 increased 6% and represented 5.1% of sales, versus 5.0% of sales a year ago.

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