Covidien Ltd.'s (COV) fiscal second-quarter net income dropped 30% as the company booked big legal and tax charges, but sales topped Wall Street expectations with help from a generic pain drug and despite continued problems in the company's business for imaging products.

The company issued new sales guidance for its fiscal year running through September that includes lowered expectations for imaging solutions, which have been pressured by supply constraints and pricing issues. But its overall sales view excluding the contribution from generic OxyContin still appeared to improve modestly.

Covidien officials, meantime, reiterated that the company is feeling only a minor impact from cutbacks in hospital spending.

Shares didn't respond favorably to the somewhat confusing results Thursday and were recently down 1.4% to $33.47. Leerink Swann analyst Rick Wise said Covidien had an "encouraging quarter" overall, but said it could take a while to digest new guidance that excludes the impact of selling generic OxyContin.

Covidien could only sell the pain drug for a limited time and is now done, per an agreement with Perdue Pharma L.P., which makes the brand-name version.

Additionally, shareholders are awaiting a late-May vote on whether to move the company's headquarters to Ireland from Bermuda. The move could have long-term tax benefits, but could also cause short-term pain for the stock if the move triggers ejection from the Standard & Poor's 500 index.

Covidien's earnings release Thursday included a "Dublin" dateline for the first time, reflecting the fact the company has already moved its tax residency. The company's top executives and U.S. operations are based in Mansfield, Mass.

Covidien's net income fell to $184 million, or 36 cents a share in the recent quarter, from $263 million, or 52 cents a share, a year earlier.

Results were hurt by a host of issues including a $183 million charge for Covidien's portion of shareholder settlements at Tyco International Ltd. (TYC), Covidien's former parent. Additionally, the company took a one-time, $155 million charge for repatriated earnings associated with new tax plans the company said will be beneficial over the long haul. Specifically, it said its effective tax rate this year will be 3 to 4 percentage points lower than it previously projected.

Excluding these and other items, Covidien said its earnings were $1.07 a share in the recent quarter.

Overall sales were $2.7 billion, up 11% and above the $2.65 billion average forecast from analysts surveyed by Thomson Reuters. Unfavorable currency rates took a big $145 million bite from the tally.

The company's medical devices business, its biggest, saw sales remain flat at $1.7 billion in the quarter. But excluding the impact of foreign currency, sales of endomechanical, energy, soft-tissue repair and vascular products saw double-digit sales increases.

Analyst Wise called a climb in U.S. device sales "particularly encouraging" amid worries about the recession curbing hospital procedures and causing product distributors to cut down on inventory levels.

Sales of pharmaceutical products more than doubled to $519 million, thanks to a $258 million contribution from generic OxyContin. Sales of medical supplies rose 10% due to higher sales of nursing care products.

The imaging-solutions business, which makes products injected into patients to create traceable signals during medical scans, continued to struggle during the quarter in a 9% drop in sales. A big issue was a long-term outage at a Dutch nuclear reactor that supplies Covidien with material used in its products.

While the reactor is finally back on, it was only running for one month of the quarter and "the supply chain remains fragile," said Richard J. Meelia, Covidien's chairman and chief executive, on a call with analysts. Also, steeper competition has hurt product pricing, he said.

Looking ahead, Covidien issued new guidance for sales that now excludes the OxyContin contribution to create a clean year-over-year comparison. That created some confusion and generated several analyst questions, although netted out, guidance for sales growth of 4% to 7% excluding the pain drug and the impact of currency rates is up slightly from guidance issued in January.

Covidien doesn't provide earnings guidance.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com