Covidien watches profits slide after kicking drugs

Covidien CEO José Almeida

Covidien ($COV) is optimistic about its pharma-free future, but the now-device-focused company faced a spike in charges last quarter that dragged down net income despite solid gains in revenue.

The Ireland-headquartered company reported $396 million in profits in its fiscal third quarter, a 12.6% drop from the same period last year. Net sales jumped about 3% to $2.6 billion on the quarter, driven by 4% growth in Covidien's medical device segment, which reached $2.14 billion in revenue. Medical supplies, the company's smaller unit, declined about 1% to $439 million.

Endomechanical instruments, Covidien's largest device segment, grew 5% to $632 million, while energy devices leapt 8% to $355 million and the oximetry and patient monitoring unit jumped 13% to $237 million. Vascular products, the company's second-biggest business, dropped 1% to $415 million, a year-over-year decline Covidien blames on a particularly strong comparison quarter from 2012.

At the end of its Q3, Covidien flipped its drug business into the standalone Mallinckrodt ($MNK), and the company will have to do without its former subsidiary's expected $1.4 billion in annual sales from here on out. But Covidien is well-prepared to capitalize on its banner medical devices business, CEO José Almeida said, expanding its market leadership in vessel sealing and medical staplers and growing its presence in emerging markets.

"With the pharmaceuticals spin-off now behind us, we are focused on strengthening our medical devices and supplies businesses through organic growth, new products and geographic expansion," Almeida said in a statement.

The company expects between 4% and 6% annual sales growth for the medical devices unit, making for up to $3.9 billion in 2013 revenue, and 1% to 2% growth in medical supplies, setting the high end at about $1.6 billion for the year.

- read Covidien's full results