Covidien shares slump following fiscal 2Q report

Covidien falls after saying higher costs and weak EU economy hurt its fiscal 2nd-quarter

Associated Press

NEW YORK (AP) -- Irish drug and medical device maker Covidien PLC said Friday that its net income fell 12 percent in the fiscal second quarter because of a variety of issues and charges. Its shares fell in midday trading.

Covidien cited higher spending related to acquisitions, costs related to the upcoming spinoff of its pharmaceutical unit, a tax on medical devices, restructuring costs and growth initiatives for the decline. It said its sales were hurt by changes in currency exchange rates.

The company also said a reactor that makes an important medical isotope won't be back online for several more weeks. That is causing an increase in costs and Covidien has warned that it could also lead to product shortages.

Shares of Covidien retreated $3.94, or 6 percent, to $62.39 in midday trading. Its shares have traded in a 52-week range of $50.25 to $68.83.

The company reported net income fell to $439 million, or 92 cents per share, for the three months ended March 29 from $497 million, or $1.02 per share, a year ago. It said it earned $1.12 per share in the latest if one-time items are excluded.

Revenue rose 5 percent to $3.1 billion from $2.95 billion.

Analysts were expecting earnings of $1.10 per share on $3.11 billion in revenue, according to FactSet.

Covidien said revenue from its medical device business rose 4 percent to $2.09 billion and sales of medical supplies grew 1 percent to $439 million. Pharmaceutical revenue increased 13 percent to $573 million.

The company is in the process of spinning of its pharmaceutical unit Mallinckrodt into a separate publicly traded company. It expects to finish that process in the next few months. Covidien says Mallinckrodt is one of the largest generic drug makers in the U.S., and the biggest supplier of opioid pain medications.

Covidien said in a conference call that austerity programs and the shaky economy in Western Europe are hurting medical technology companies, and the markets in Spain and Italy are especially weak.

In November, Covidien said a reactor in the Netherlands that supplies a molybdenum isotope was offline. The reactor was turned off for maintenance and a problem with its cooling water system was discovered. The molybdenum isotope is used in scans that can diagnose a variety of diseases, and Covidien said its costs have increased because it is getting the isotope from other sources.

Another reactor will be shut down for scheduled maintenance during the third quarter, and the company said that could lead to continued high material costs, lower sales, and possible shortages of the isotope.

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