Covidien plc (Covidien), a Bermuda-based medical devices company, has reported net sales of $10.67 billion for the fiscal 2009, compared with the net sales of $10.35 billion in the previous year-end. It has also reported a net income of $907 million, or $1.79 per diluted share, for the fiscal 2009, compared with the net income of $1.36 billion, or $2.70 per diluted share, in the previous year-end.
Excluding the comparison of $57 million in fourth-quarter 2008 sales of oxycodone hydrochloride extended-release tablets (Oxy ER), fourth-quarter 2009 operational growth (net sales growth excluding the effect of foreign exchange) was 4%, driven primarily by higher volume, new products and pricing.
Fourth-quarter 2009 gross margin of 52.8% was down 0.5 percentage points from the prior-year period. As shown on the attached quarterly Non-GAAP Reconciliations table, the fourth-quarter 2009 adjusted gross margin was 53.2%, up 0.9 percentage points from the 2008 adjusted gross margin. The fourth-quarter 2009 improvement reflected positive mix in Medical Devices and benefits from the company’s restructuring program, partially offset by unfavorable foreign exchange.
Selling, general and administrative expenses for the fourth quarter of fiscal 2009 were significantly higher than those of a year ago. The 2009 expenses included planned increases in selling and marketing, as well as one-time charges primarily related to legal and environmental matters. These expenses were partially offset by benefits from foreign exchange. Research and Development (R&D) expense in the quarter increased 7% from that of the prior year and represented 4.2% of net sales.
In the fourth quarter, the Company reported operating income of $308 million, versus $555 million in the same period the year before. Fourth-quarter 2009 adjusted operating income, excluding the specified items shown in the attached quarterly Non-GAAP Reconciliations table, was $538 million, versus $519 million in the fourth quarter of the previous year. Fourth-quarter adjusted operating income, excluding the specified items, represented 19.9% of sales, versus 19.7% a year ago.
The fourth-quarter results also included other income of $122 million representing the impact of the company’s tax sharing agreement, primarily resulting from Tyco International’s settlement of certain pre-separation tax matters.
The fourth-quarter effective tax rate of 86.0% was negatively impacted by several items, including the effect of Tyco International’s settlement of certain outstanding pre-separation tax matters with the IRS and the write-off of a previously recognized deferred tax asset related to the Specialty Chemicals business. Excluding the specified items, the fourth-quarter tax rate was 27.4%.
Fourth-quarter diluted GAAP earnings per share from continuing operations were $0.11, versus $0.84 per share in the fourth quarter of last year. Fourth-quarter adjusted diluted earnings per share, excluding the specified items, were $0.72, versus $0.68 a year ago.
Sales rose 8% in the United States, but declined 3% outside the U.S., reflecting non-U.S. operational growth of 7% and a negative currency impact of 10%. Total Company operational growth, excluding the impact of Oxy ER, was 5%.
The Company reported operating income of $1.9 billion in fiscal 2009, versus $2.0 billion a year earlier. Fiscal 2009 adjusted operating income, excluding the items specified in the attached Non-GAAP Reconciliations table, as well as Oxy ER, was $2.08 billion, versus $2.10 billion in the previous year. Fiscal 2009 adjusted operating income, excluding the specified items and Oxy ER, represented 20.1% of sales, versus 20.3% a year ago.
The effective tax rate was 51.3% for fiscal 2009. Excluding the specified items, the adjusted tax rate was 26.3%.
For fiscal 2009, diluted GAAP earnings per share from continuing operations were $1.78, versus $3.04 in 2008. Excluding the specified items and Oxy ER, adjusted diluted earnings per share from continuing operations were $2.84, versus $2.70 a year ago.
“We finished fiscal 2009 with a solid performance that was in line with our expectations,” said Richard J. Meelia, Chairman, President and CEO. “Our 2009 results were aided by successful new product launches, market share gains and several strategic acquisitions. We significantly increased R&D spending, made several portfolio management moves to strengthen our business and again generated strong cash flow.
“Looking forward to 2010, we are revising our guidance upward to reflect the weakening of the U.S. dollar, the acquisition of Aspect Medical Systems and the FDA’s recent approval of two important new products in our Pharmaceuticals business,” Mr. Meelia added. “We are confident that our strong pipeline of new products, aggressive cost control initiatives and recent key strategic investments will drive our continued growth in the coming year and beyond.”
Results by business segment follow.
Medical Devices sales of $1.6 billion in the fourth quarter were 7% above the $1.5 billion in the comparable quarter of last year. Operational growth was 9%, reflecting new products and increased volume. Operationally, sales in Endomechanical climbed at a double-digit pace, fueled by sharply higher sales of stapling products. The Energy double-digit quarterly sales gain was again due to strong growth for vessel sealing products, partially offset by a continued slowdown in capital-related hardware products. In Soft Tissue Repair, sales of mesh and biosurgery products again rose rapidly, but growth in the product line was restrained by somewhat lower sales of sutures. In Airway and Ventilation, quarterly operational sales were up slightly, driven by an increase in ventilator sales outside the United States. Vascular sales rose at a double-digit pace, due to the addition of VNUS and Bacchus products, both of which surpassed the company’s expectations, coupled with good growth for compression products.
For fiscal 2009, Medical Devices sales were up 2% to $6.1 billion, versus $5.9 billion a year ago. Unfavorable foreign exchange reduced the sales growth rate by approximately 6 percentage points.
Pharmaceuticals sales of $637 million in the fourth quarter were 10% below those of the prior year’s $708 million. Unfavorable foreign exchange contributed about 2 percentage points to the decrease. In addition, the year-ago quarter included $57 million in Oxy ER sales. Excluding the impact of foreign exchange and Oxy ER, sales were essentially unchanged in the fourth quarter. Sales in the quarter benefited from a double-digit increase in radiopharmaceuticals, aided by an improved supply situation versus the year before. Operationally, sales of contrast products were up slightly, though growth was restrained by continued softness for capital equipment. Sales of Active Pharmaceutical Ingredients were little changed from those of the prior year’s fourth quarter, while Specialty Chemicals sales declined, reflecting weakness in microelectronic chemicals. Excluding Oxy ER, sales of Specialty Pharmaceuticals were well below those of a year ago, due to sharply lower sales of branded products and softness for generic products.
For fiscal 2009, Pharmaceuticals sales climbed 8%, from $2.66 billion last year to $2.86 billion, with unfavorable foreign exchange reducing the sales growth rate by approximately 4 percentage points. Oxy ER contributed $354 million in 2009 and $57 million in 2008. Excluding the impact of foreign exchange and Oxy ER, Pharmaceuticals sales in 2009 were 1% above those of the prior year.
Medical Supplies fourth-quarter sales of $433 million were 6% below the $462 million reported in the comparable quarter of the previous year. The decline was primarily due to lower sales of Nursing Care, SharpSafety and OEM products. For fiscal 2009, sales of Medical Supplies, at $1.75 billion, were 2% below last year’s $1.79 billion, with unfavorable foreign exchange reducing the sales growth rate by approximately 2 percentage points.
During fiscal 2009, Covidien purchased approximately 6 million ordinary shares under its previously announced share buyback program.