Layoffs Ahead for Covidien

Covidien says it plans to consolidate its manufacturing and distribution operations as part of a global restructuring aimed at saving up to $300 million a year.

Covidien (NYSE:COV) said its board of directors authorized a restructuring plan aimed at saving up to $300 million a year by fiscal 2018, with manufacturing and distribution operations slated to be closed. Covidien did not reveal how many layoffs would be involved.

Mansfield, Mass.-based Covidien said the restructuring, “developed to continue to drive efficiencies and improve the company’s cost structure,” will include several elements aimed at “creating efficiencies,” according to a regulatory filing.

“The plan will focus on creating efficiencies by, among other things, reducing corporate expense, expanding the use of shared services in low-cost locations, outsourcing services where appropriate, streamlining the Company’s organizational structure, consolidating manufacturing locations, consolidating and optimizing distribution centers and expanding low-cost country sourcing,” according to the filing.

The Mansfield, Mass.-based medical device company said the plan is expected to run up $350 million to $450 million in pre-tax charges by the end of fiscal 2018, generating savings of between $250 million to $300 million beginning next year and accelerating in fiscal 2015. About $100 million worth of the pre-tax cost will come from facility closures, Covidien said, with the balance coming from severance and termination costs.

Covidien also said it’s boosting its quarterly dividend by 23%, from 26¢ to 32¢ per share, meaning its annual dividend will rise from $1.04 per share to $1.28.

“This increase reflects our good performance to date in 2013 and our confidence in further growth,” chairman, president & CEO José Almeida said in prepared remarks. “We remain committed to using our strong cash flow to fund business expansion, while returning at least 50% of our free cash flow to shareholders through dividends and share repurchases. In the last twelve months, we have exceeded this target, returning over 125% of our free cash flow to shareholders.

“As we have previously announced, the Company intends to continue to increase its dividend and is targeting a dividend payout ratio – dividends paid per share divided by adjusted earnings per share – in excess of 35% over time,” Almeida added. “Because of this, we expect dividends to increase at or above the rate of earnings growth for the next several years.”


Josh Sandberg

Josh Sandberg is the President of Ortho Spine Partners and Partner for The De Angelis Group. He also serves as Co-Founder and Editor of OrthoSpineNews.

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