UPDATE 2-Covidien raises 2010 sales outlook, shares rise

* Q4 EPS ex-items $0.72 vs Street view $0.70

* Q4 sales $2.70 bln vs average estimate of $2.62 bln

* Raises fiscal 2010 sales forecast to up 6-9 percent

* Sees device sales up 9-12 pct, drug sales flat-up 3 pct

* Shares rise 3.5 percent on NYSE (Recasts, adds CEO and analyst comments, byline)

By Susan Kelly

CHICAGO, Nov 17 (Reuters) - Covidien (COV.N) on Tuesday said solid sales of medical devices drove better-than-expected quarterly earnings, and it raised its 2010 sales outlook, sending its shares up 3.5 percent.

Strong sales of surgical stapling products and vessel sealing instruments in the quarter offset soft demand for capital equipment systems, whose sales have been hurt by hospital spending constraints in the weak economy, the company said.

"Strength in medical devices should help put industry volume and hospital inventory de-stocking concerns to rest," Morgan Stanley analyst David Lewis said in a note to clients.

Covidien said it raised its sales outlook for next year based on a weaker U.S. dollar, the acquisition of brain-monitor maker Aspect Medical Systems and recent U.S. regulatory approval of generic versions of cancer pain drug Actiq and topical pain cream Pennsaid.

Dublin-based Covidien posted net profit of $56 million, or 11 cents a share, for the fiscal fourth quarter ended Sept. 25, compared with $409 million, or 84 cents a share, a year earlier. Net results were reduced by a string of charges related to various divestitures and acquisitions.

The company, which was spun off from Tyco International (TYC.N) in mid-2007, said earnings excluding one-time items were 72 cents a share.

Analysts on average expected a profit of 70 cents a share, before special items, on revenue of $2.62 billion, according to Thomson Reuters I/B/E/S.

Net sales in the quarter were essentially flat at $2.7 billion, with unfavorable foreign exchange translations shaving 2 percentage points off the growth rate, the company said.

Medical device sales rose 7 percent to $1.6 billion, while pharmaceutical sales fell 10 percent to $637 million from a year ago, when it benefited from launching a generic extended-release form of prescription painkiller OxyContin.

Sales of medical supplies, including equipment systems, fell 6 percent to $433 million.

"We continue to see restraints on capital equipment spending across the business," Covidien Chief Executive Richard Meelia told investors on a conference call.

However, sales of airway and ventilation products got a boost from preparations for the H1N1 virus especially outside the United States, the company said.

For fiscal 2010, Covidien said it now expects sales growth of 6 percent to 9 percent from a year ago. It had previously projected sales growth of 4 percent to 7 percent. It left its operating margin outlook unchanged at 20 percent to 21 percent.

Medical device sales are forecast up 9 percent to 12 percent, while pharmaceutical sales are expected to be flat to up 3 percent.

Shares of Covidien rose $1.56 to $45.67 on the New York Stock Exchange. (Reporting by Susan Kelly in Chicago and Krishnakali Sengupta in Bangalore; Editing by Anil D'Silva, Dave Zimmerman)