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Alcon (ALC) Q1 Earnings Surpass Estimates, Margins Grow

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Alcon Inc. ALC delivered core earnings per share (EPS) of 68 cents in the first quarter of 2022, surging 38.8% from the year-ago quarter’s figure. The figure also exceeded the Zacks Consensus Estimate by 30.8%. Alcon’s ‘core’ results are based on non-IFRS (International Financial Reporting Standards) measures.

ALC reported first-quarter EPS of 34 cents, up 100% from 17 cents in the year-ago quarter.

Revenues in Detail

Alcon’s net sales to third parties in the first quarter were $2.18 billion, beating the Zacks Consensus Estimate by 6.6%. The top line increased 13.9% from the year-ago quarter’s levels (up 18% at constant exchange rate or CER).

In the first quarter, Total Surgical (consisting of implantables, consumables and equipment/other) sales amounted to $1.26 billion, up 17% on a reported basis (up 22% at CER). Alcon registered implantables growth, fueled by the continued adoption of advanced technology intraocular lenses. The high adoption was supported by the Vivity and the Hydrus Microstent sales. The upside in consumables can be attributed to higher procedure volumes backed by improving market conditions. Equipment/other grew on the rising demand for cataract equipment.

Alcon Price, Consensus and EPS Surprise

Alcon Price, Consensus and EPS Surprise
Alcon Price, Consensus and EPS Surprise

Alcon price-consensus-eps-surprise-chart | Alcon Quote

Total Vision Care (comprising contact lenses and ocular health) reported sales of $916 million, up 10% year over year (up 14% at CER). In the quarter, contact lens growth was driven by sales of silicone hydrogel contact lenses, including the Precision1 and Dailies Total1 product lines and the Total30. The demand for Systane dry eye and Simbrinza glaucoma eye drops and improvements in certain international markets drove growth in the ocular health business. However, the uptick was partially offset by declines in contact lens care.

Margins

The cost of net sales in the quarter was $967 million, up 9.9% year over year. Adjusted gross profit (net sales to third parties less cost of net sales) increased 17.3% to $1.21 billion in the reported quarter. Adjusted gross margin expanded 161 basis points (bps) to 55.5% in the first quarter of 2022.

The core operating margin, according to Alcon, was 20.6% in the quarter. In the year-ago period, the company had reported a core operating margin of 18%.

Financial Position

Alcon exited first-quarter 2022, with cash and cash equivalents of $961 million compared with $1.58 billion at the end of 2021.

Cumulative net cash flow from operating activities at the end of the quarter was $66 million compared with $156 million a year ago. For the same period, free cash flow totaled an outflow of $52 million against free cash inflow of $48 million in the year-ago quarter.

2022 View

Alcon updated its 2022 guidance, assuming global markets to improve from 2021 levels backed by the ongoing market recovery. The company expects that the current level of inflation will persist for the rest of the year. The exchange rates as of mid-April 2022 are expected to prevail through year-end.

The company reaffirmed its net sales expectation in the range of $8.7-$8.9 billion, indicating growth of 9-11% at CER from 2021 levels (up from the previous estimate of 7-9% at CER). The Zacks Consensus Estimate for ALC’s revenues is pegged at $8.8 billion.

The company also maintained core earnings per share expectations in the range of $2.35-$2.45, suggesting growth of 19-24% from 2021 levels (up from the prior estimate of 13-18%). The Zacks Consensus Estimate for ALC’s earnings is currently pegged at $2.39 per share.

Our Take

Alcon exited the first quarter with revenues and earnings beating the Zacks Consensus Estimate. The company reported year-over-year growth across all sales categories in Surgical and Vision Care. Robust sales of the Hydrus Microstent, following the latest acquisition of Ivantis, are encouraging. The margin improvements instill optimism. The company’s updated 2022 guidance, with strong growth projections over 2021, boosts investors’ confidence.

However, the decline in contact lens care stemming from supply chain challenges does not bode well. Unfavorable foreign exchange impact, the ongoing inflationary pressure and other macroeconomic headwinds are persistent challenges.

Zacks Rank & Key Picks

Alcon currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Alkermes plc ALKS, Medpace Holdings, Inc. MEDP and UnitedHealth Group Incorporated UNH.

Alkermes reported first-quarter 2022 adjusted EPS of 12 cents, which surpassed the Zacks Consensus Estimate of a penny. Revenues of $278.6 million outpaced the Zacks Consensus Estimate by 6.2%. Alkermes currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alkermes has an estimated long-term growth rate of 25.1%. ALKS’ earnings surpassed estimates in the trailing four quarters, the average surprise being 350.5%.

Medpace reported first-quarter 2022 adjusted EPS of $1.69, which surpassed the Zacks Consensus Estimate by 34.1%. Revenues of $330.9 million outpaced the Zacks Consensus Estimate by 1.1%. It currently has a Zacks Rank #2 (Buy).

Medpace has a historical growth rate of 27.3%. MEDP’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%.

UnitedHealth, having a Zacks Rank #2, reported first-quarter 2022 adjusted EPS of $5.49, which beat the Zacks Consensus Estimate by 1.7%. Revenues of $80.1 billion outpaced the consensus mark by 1.9%.

UnitedHealth has an estimated long-term growth rate of 14.8%. UNH’s earnings surpassed estimates in the trailing four quarters, the average surprise being 3.7%.


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