Covidien Ltd. (Covidien), a Bermuda-based medical devices company, has reported net sales of $2.7 billion for the second quarter of fiscal 2009, up 11%, compared with the net sales of $2.4 billion in the year-ago quarter. It has also reported a net income of $184 million, or $0.36 per diluted share, for the second quarter of fiscal 2009, compared with the net income of $263 million, or $0.52 per diluted share, in the year-ago quarter.
Fiscal 2009 Outlook
For fiscal 2009, Covidien now expects total operational growth to a range of 4% to 7%.
Looking ahead for fiscal 2009, total Covidien net sales are now expected to be down 3% to flat, including foreign exchange at current rates. The Company expects no change to its previously communicated sales growth rates for Medical Devices (-3% to flat versus 2008) or Medical Supplies (up 2% to 5% versus 2008). Sales of Imaging Solutions are now anticipated to be -9% to -6% below 2008, while sales of Pharmaceutical Products are expected to be up 5% to 8% versus 2008. The operating margin is projected to be in the 19% to 20% range. As a result of the implementation of tax planning strategies noted above, the Company now anticipates the effective tax rate will be in the 25% to 27% range for 2009. Guidance on both the operating margin and the effective tax rate excludes the impact of any one-time items.
In the second quarter, the company reported operating income of $527 million, compared with $405 million in the same period the year before. Second-quarter adjusted operating income was $488 million, compared with $500 million in the second quarter of the previous year. Second-quarter adjusted operating income, excluding the specified items and Oxy ER, represented 20.0% of sales, compared with 20.6% a year ago. The margin decline was primarily due to unfavorable foreign exchange.
During the second quarter, Covidien implemented tax planning strategies to offset the loss of tax synergies resulting from the separation from Tyco International. The company expects that this implementation will lower its 2009 effective tax rate by 3 to 4 percentage points versus its prior guidance and expects to sustain the lower tax rate over the long-term.
The second-quarter effective tax rate of 65.2% included a one-time charge of about $155 million for withholding tax on repatriated earnings related to the implementation of tax planning strategies and the impact of the $183 million charge for shareholder settlements, for which no tax benefit was realized. Excluding the specified items, the second-quarter tax rate was 23.0%.
Second-quarter diluted GAAP earnings per share from continuing operations were $0.34, versus $0.49 per share in the second quarter of last year. The second-quarter adjusted diluted earnings per share, excluding the specified items and Oxy ER, were $0.69, versus $0.66 a year ago.
For the first six months of 2009, net sales of $5.2 billion were 9% above the $4.7 billion in the prior year, with unfavorable foreign exchange lowering the sales growth rate by about 5 percentage points. Sales rose 19% in the US, but declined 4% outside the US, reflecting non-US operational growth of 8% and a negative currency impact of 12%. Operational growth excluding the impact of Oxy ER was 6%.
The company reported operating income of $1.06 billion in the first six months of fiscal 2009, compared with $860 million in the comparable period a year ago. Six-month adjusted operating income, excluding the specified items and Oxy ER, was $964 million, versus $972 million in the previous year. Six-month 2009 adjusted operating income, excluding specified items and Oxy ER, represented 20.1% of sales, versus 20.5% a year ago. The margin decline was primarily due to unfavorable foreign exchange.
The effective tax rate was 45.3% for the first six months of fiscal 2009. Excluding the specified items, the adjusted tax rate for the first six months was 25.6%.
For the first six months of fiscal 2009, diluted GAAP earnings per share from continuing operations were $1.08. Excluding the specified items and Oxy ER, adjusted diluted earnings per share from continuing operations were $1.32.
“Despite the global economic slowdown, we delivered solid operational performance in the second quarter,” said Richard J. Meelia, chairman, president and chief executive officer. “Our results were driven by new products and market share gains, aided by double-digit increases in several key product lines. This performance more than offset unfavorable foreign exchange, resulting in strong growth in our quarterly operating earnings. As planned, we concluded Oxy ER sales in the quarter and we were pleased that sales were significantly above our original projections.
“Results in the Imaging segment were again below our expectations. We are addressing this situation and developing plans to improve profitability in this business over time. Overall, total company performance remains on track and we are continuing to make the investments necessary to generate operational growth in 2009 and beyond,” Meelia added.