Covidien Q1 Adj Profit Tops View, But Sales Miss

(RTTNews) - Medical device maker Covidien Ltd. (COV), which is being acquired by larger rival Medtronic, Inc. (MDT), reported Thursday a profit for the first quarter that increased 28 percent from last year, reflecting improved operating margins and sales growth. Adjusted earning per share topped analysts' expectations, while quarterly net sales missed their estimates by a whisker.

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 early 2015 after receipt of certain additional regulatory clearances and approvals by both companies' shareholders, , in addition to sanction by the High Court of Ireland.

"We continued to perform strongly during the quarter, driven by considerable growth in Surgical Solutions, our largest product category, as well as important new offerings and a sustained focus on productivity improvement," Chairman, President and CEO José Almeida said in a statement.

The Dublin, Ireland-based company reported net income of $511 million or $1.12 per share for the first quarter, higher than $398 million or $0.87 per share in the prior-year quarter.

Excluding special items, adjusted net income for the quarter was $511 million or $1.11 per share, compared to $456 million or $1.00 per share in the year-ago quarter.

On average, 15 analysts polled by Thomson Reuters expected the company to report earnings of $1.05 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter increased 2 percent to $2.69 billion from $2.64 billion in the same quarter last year, but missed thirteen Wall Street analysts' consensus estimate of $2.72 billion by a whisker. Operational sales growth was 6 percent, excluding foreign exchange rate movement.

Medical devices sales edged up 1 percent to $2.28 billion, and U.S. medical supplies grew 5 percent to $408 million from last year.

Total domestic sales for the quarter improved 6 percent to $1.39 billion, and emerging market sales increased 2 percent to $404 million, while non-U.S. developed markets sales declined 5 percent to $891 million from the year-ago quarter.

Surgical solutions sales grew 4 percent to $1.31 billion, and vascular therapies sales improved 1 percent to $428 million, while sales for respiratory and patient care decreased 1 percent to $945 million from last year.

Operating margin for the quarter expanded 400 basis points to 24.1 percent from last year's 20.1 percent, as gross profit margin improved 200 basis points. Income tax expense for the quarter declined to $72 million from last year's $115 million.

"We expect to maintain this solid performance as we continue to invest in and execute our global strategy," Almeida said in a statement.

In Thursday's regular trading session, COV is currently trading at $105.18, up $2.73 or 2.66% on a volume of 0.62 million shares.