Covidien plc (NYSE: COV) today reported results for the fourth quarter of fiscal 2013 (July - September 2013). Fourth-quarter net sales of $2.56 billion increased 2% from the $2.50 billion in the fourth quarter a year ago. Foreign exchange rate movement lowered the quarterly sales growth rate by three percentage points.
"We delivered a solid performance in the fourth quarter and finished 2013 in line with our expectations. That said, reported sales growth were negatively impacted by the strength of the U.S. dollar against most foreign currencies," said José E. Almeida, Chairman, President and CEO.
"We had strong growth in Endomechanical Instruments and Energy, as well as in all major product lines in emerging markets resulting from investments in these regions," Mr. Almeida said. "We also registered double-digit sales growth for Oridion, superDimension, BÂRRX and Newport during the quarter, which demonstrates our continued success in operating these businesses acquired in 2012."
Fourth-quarter 2013 gross margin of 58.1% increased 0.2 percentage points from the 57.9% of the prior-year period. On an adjusted basis, excluding the specified items shown on the attached quarterly Non-GAAP reconciliations table, fourth-quarter 2013 gross margin of 58.2% was 0.7 percentage points below that of a year ago. The decline was primarily due to unfavorable foreign exchange, partially offset by the positive net impact of price, volume and mix.
Selling, general and administrative expenses for the fourth quarter of 2013 were above those of the comparable quarter of the year before. This was due to spending on growth initiatives and the medical device tax, partially offset by productivity improvements. Research and development (R&D) expense in the fourth quarter of 2013 represented 5.7% of net sales, versus 4.6% of sales in the fourth quarter a year ago. Excluding specified items, fourth-quarter 2013 R&D spending increased 11% and represented 5.0% of sales.
In the fourth quarter of 2013, the Company reported operating income of $472 million, versus $475 million in the same period the year before. Fourth-quarter 2013 adjusted operating income, excluding the specified items on the attached table, was $530 million, compared with $543 million in the previous year. Both operating income and adjusted operating income for the current quarter were reduced by approximately $60 million due to the impact of unfavorable foreign exchange and the medical device tax. Fourth-quarter 2013 adjusted operating income, excluding the specified items, represented 20.7% of sales, versus 21.7% of sales a year ago.
The fourth-quarter 2013 effective tax rate was 17.8%, versus an effective tax rate of 7.8% in the fourth quarter of 2012. The fourth-quarter 2013 adjusted tax rate, excluding the specified items on the attached table, was 14.5%, versus 17.7% in the fourth quarter a year earlier.
Diluted GAAP earnings per share from continuing operations were $0.79 in the fourth quarter of 2013, versus $0.83 per share in the comparable quarter last year. Fourth-quarter 2013 adjusted diluted earnings per share from continuing operations, excluding the specified items on the attached table, were $0.91, versus $0.86 a year ago, a 6% increase despite unfavorable foreign exchange, the medical device tax and incremental investments in emerging markets.
In the fourth quarter of 2013, Covidien purchased approximately 10.2 million ordinary shares under its previously announced share buyback program.
For fiscal 2013, net sales of $10.24 billion were 4% above the $9.85 billion in the previous year, with foreign exchange rate movement lowering the sales growth rate by two percentage points.
The Company reported operating income of $2.13 billion in fiscal 2013, versus $2.09 billion in the comparable period the year before. Fiscal 2013 adjusted operating income, excluding the specified items on the attached table, was $2.26 billion, versus $2.29 billion of the prior year. Fiscal 2013 adjusted operating income, excluding the specified items, represented 22.1% of sales, versus 23.2% a year ago.
The effective tax rate was 21.1% for fiscal 2013, versus an effective tax rate of 14.7% in 2012. Excluding the specified items on the attached table, the adjusted tax rate for fiscal 2013 was 16.0%, versus 17.3% in 2012.
Fiscal 2013 diluted GAAP earnings per share from continuing operations were $3.40, versus $3.37 in 2012. Excluding the specified items on the attached table, adjusted diluted earnings per share from continuing operations were $3.72, versus $3.61 last year, a 3% increase.
BUSINESS SEGMENT RESULTS
Medical Devices sales of $2.13 billion in the fourth quarter were 3% higher than the $2.06 billion in the comparable quarter of last year. Operational sales growth was 6%, as foreign exchange rate movement reduced the quarterly sales growth rate by three percentage points. Growth was driven by new products and increased volume. Fourth-quarter sales in Endomechanical were higher than those of the prior year, fueled by double-digit gains for stapling products, led by our innovative Tri-Staple™ reloads. In Soft Tissue Repair, sales were somewhat above those of a year ago, paced by sutures. Sales of Energy products were notably above the prior year's level, largely due to another double-digit quarterly sales gain for vessel sealing products, our largest category within Energy. Sales in Oximetry & Monitoring were well above the year before, aided by higher sales of sensors and capnography products. Airway & Ventilation sales were about the same as those of the previous year, as an increase in airway products countered lower sales of ventilators. Sales of Vascular products increased modestly from those of a year ago, as we experienced strong growth for chronic venous insufficiency products and increased sales of peripheral and neurovascular products somewhat offset by decreased sales of compression products.
For fiscal 2013, Medical Devices sales climbed 5% to $8.49 billion from $8.11 billion a year ago. Foreign exchange rate movement reduced the sales growth rate by two percentage points.
Medical Supplies fourth-quarter sales of $434 million were 1% below the $439 million reported in the comparable quarter of 2012, resulting from slight declines in all four product lines.
For fiscal 2013, sales of Medical Supplies, at $1.75 billion, were essentially unchanged from last year's $1.74 billion. Higher sales of Nursing Care products, led by enteral feeding, were offset by decreased sales of OEM, Medical Surgical and SharpSafety™ products.
FISCAL 2014 OUTLOOK
All fiscal 2014 guidance that the Company issued at investor day in September remains unchanged.