Financial

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.”

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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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