Covidien plc (NYSE:COV) officials aren’t predicting any doomsday scenarios for the incoming medical device tax.
In a conference call with investors Thursday, company CFO Charles Dockendorff called the tax "just another business issue" the company would manage as it moves forward.
"We’re looking at it, we’re looking at a number of different options right now," he said. "But again, our commitment has been to long-term, double-digit EPS growth over time. And we don’t think that something like that, particularly, should knock us off that goal. We get these kind of increases in raw materials or currency that are far greater than that all the time. So it’s just another business issue, that we will deal with as we look in 2013."
Dockendorff added that about half of the company’s revenues would be tied into the 2.3% tax, which is slated to go into effect next year. The levy is part of the Patient Protection & Affordable Care Act, commonly known as health care reform, or "Obamacare."
Dockendorff’s characterization is subdued compared to his counterparts in the industry, who have universally panned the tax as a major burden on the industry’s fortunes.
In a recent op-ed in the Des Moines Register newspaper, Cook Group chairman Stephen Ferguson called the tax a "bad idea that will only get worse with time" and estimated that the tax will kill 15% of the company’s profits.
Other big device players are looking to cut jobs in order to compensate for the extra fees. Last fall, Stryker Corp. (NYSE:SYK) announced major job cuts, equaling 5% of its workforce, as it looked to shed about $100 million in costs from its bottom line.
Earlier this week the medical device industry called on President Barack Obama to support repeal efforts in Congress to void the tax in a response to his State of the Union speech.
"The President is right to emphasize manufacturing, and medical technology companies support his efforts to boost manufacturing growth, especially through increased exports and lower trade barriers," AdvaMed President & CEO Stephen Ubl said in prepared remarks. "Consistent with this emphasis on manufacturing, we urge President Obama to support repeal of the medical device tax, which is already causing layoffs and will make our tax system even more uncompetitive. Congress should repeal the tax this year.”
Covidien reported better than expected earnings on Thursday, with sales jumping 4.7% during the 1st quarter, to $2.9 billion, compared to $2.77 billion during the same time last year.