Pricing pressures, foreign exchange rates dampen Covidien's Q4

Covidien ($COV) blames foreign exchange rates for causing a sales dip in both its 2012 fourth quarter and fiscal year, but pricing pressures in some device segments and at least one product recall also hurt.

Sales soared for products such as the company's Tri-Staple reloads and biosurgery products. But surgical instrument sales declined. They suffered damage, in part, by a recall and product discontinuation of the company's Duet TRS surgical stapling device, which was linked to injuries and three deaths.

Fourth quarter net sales reached $3 billion, but they were about 3% lower than the $3.08 billion generated in the 2011 fourth quarter. For the 2012 fiscal year, net sales surpassed $11.85 billion, a 2% increase above the $11.57 billion in sales Covidien booked in 2011. Medical device sales dipped 1% during the fourth quarter, but rose 4% overall for fiscal 2012, hitting $8.11 billion. All of these numbers would have been higher, Covidien said, save for unfavorable exchange rates. But they fell within expectations, company chairman, president and CEO José E. Almeida said in a statement, noting that Covidien's expansion in emerging markets and its aggressive launch of new products remains on track.

Other than exchange rate issues, Covidien also blamed fewer days for the sales figures reported in the fiscal 2012 fourth quarter. Medical supplies sales, for example, dripped 9%. Executives compared the number to the fiscal 2011 fourth quarter, when the calendar gave them an extra selling week.

Net income hit the $461 million mark, up from $451 million in fiscal 2011. For the year, diluted GAAP earnings per share from continuing operations hit the $3.92 mark, a solid rise from 2011's diluted earnings per share of $3.79.

During the year, Almeida noted, Covidien announced plans to spin off its pharmaceuticals business, rolled out a number of new products and pursued a number of acquisitions to expand its market opportunities. But Covidien also pursued some cutbacks, slashing nearly 600 jobs through the shuttering of a South Carolina plant. Plans call for shifting product production to an existing Costa Rican operation in order to boost operating efficiency.

- read the full earnings release

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