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Edwards Lifesciences (EW) Beats on Q2 Earnings, Ups EPS View

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Edwards Lifesciences Corporation’s EW second-quarter 2020 adjusted earnings per share (EPS) of 34 cents beat the Zacks Consensus Estimate by a stupendous 126.7%. However, the figure declined 26.1% year over year.

GAAP loss per share was 20 cents in the quarter against the year-ago EPS of 38 cents.

Sales Details

Second-quarter net sales improved to $925 million, down 14.9% year over year on a reported and 14% on an underlying basis. However, the metric surpassed the Zacks Consensus Estimate by 18.2%.

Revenues were primarily driven by continued adoption of the company’s life-saving technologies across the globe despite challenges arising from the coronavirus-led business disruptions.

Edwards Lifesciences Corporation Price, Consensus and EPS Surprise

 

Edwards Lifesciences Corporation Price, Consensus and EPS Surprise
Edwards Lifesciences Corporation Price, Consensus and EPS Surprise

Edwards Lifesciences Corporation price-consensus-eps-surprise-chart | Edwards Lifesciences Corporation Quote

Segmental Details

In the second quarter, global sales in the Transcatheter Aortic Valve Replacement (TAVR) product group amounted to $594.3 million, down 12.3% from the prior-year figure on reported basis. On an underlying basis, the fall was 11.5%. However, average selling prices were stable worldwide. In the United States, total TAVR sales declined in the low teens year over year. Outside the United States, total TAVR sales declined in the high single digits year over year, on an underlying basis.

Transcatheter Mitral and Tricuspid Therapies sales totaled $6.1 million, down 11.2% from the prior-year figure on a reported basis. On an underlying basis, the fall was 9.3%. The segment registered strong momentum on increased adoption of the PASCAL mitral valve system in Europe. Notably, the company received CE Mark approval for its PASCAL transcatheter valve repair system to treat patients with tricuspid regurgitation in Europe. Further, the company received the FDA’s nod to initiate a pivotal study for the EVOQUE tricuspid replacement system, which is designed to gain U.S. approval and has received breakthrough device designation from the regulatory body.

Surgical Structural Heart’s sales in the quarter totaled $160.9 million, down 26.1% from the year-ago quarter on a reported basis and 25.1% on an underlying basis. Per management, the downside resulted from lower surgical aortic valve procedures in the United States owing to increased adoption of TAVR. The segment primarily suffered due to a sharp decline in procedures related to COVID-19. However, the decline was partly offset by continued adoption of the INSPIRIS surgical aortic valve and the recent FDA-approved KONECT RESILIA aortic valved conduit.  Further, the company reported successful completion of the first commercial cases of the HARPOON mitral valve repair system in Europe.

Critical Care sales totaled $163.7 million in the second quarter, down 11.3% from the year-ago quarter on a reported basis and 10.2% on an underlying basis. The downside resulted from the pandemic-led impact of delayed elective procedures and lower HemoSphere advanced monitoring platform orders in the United States as hospitals continue to limit their capital spending due to COVID-19. However, this was partially offset by robust demand for TruWave disposable pressure monitoring devices used in ICUs.

Margins

In the second quarter, gross profit was $686.8 million, down 12.3%. However, gross margin expanded 222 basis points (bps) to 74.2%.

The company-provided adjusted gross margin was 74.4%, reflecting a year-over-year contraction of 200 bps. This included incremental costs associated with responding to COVID-19 and a negative impact from foreign exchange.

SG&A expenses fell 10.9% year over year to $274.9 million, primarily resulting from the COVID-19 impacts. R&D expenditures dropped 5.1% year over year to $182.1 million, primarily resulting from high clinical spending in the prior year and reduced current-year clinical trial activity due to COVID-19. This drove operating costs down by 8.7% to $457 million.

However, during the reported quarter, operating income was down 18.7% year over year to $229.8 million. Accordingly, operating margin contracted 115 bps to 24.8%.

Cash Position

Edwards Lifesciences exited the second quarter of 2020 with cash and cash equivalents, and short-term investments of $1.16 billion compared with $1.03 billion at the end of the first quarter of 2020. Long-term debt at the end of second-quarter 2020 was $594.7 million compared with $594.6 million at the end of the first quarter of 2020.

Cumulative net cash provided by operating activities at the end of the second quarter was $231 million compared with $341 million a year ago. Capital expenditure rose to $108 million from $64 million a year ago.

Guidance

For 2020, Edwards Lifesciences continues to expect sales in the range of $4-$4.5 billion. The Zacks Consensus Estimate for 2020 revenues is currently pegged at $4.26 billion. The company assumes a progressive recovery likely in the second half of the year. It however apprehends a challenging year-over-year comparison, as last-year sales had improved a robust 19%.

Full-year adjusted EPS has been raised to a new range of $1.75-$1.95 on a post-split basis, compared to the previous guidance of $1.58-$1.75 (pre-split basis was $4.75-$5.25). The Zacks Consensus Estimate for the same is currently pinned at $1.66.

For the third quarter, the company projects sales in the range of $1- $1.2 billion. The Zacks Consensus Estimate for the same is currently pegged at $1.05 billion.

Our Take

Edwards Lifesciences exited the second quarter with better-than-expected results despite the adverse impact of coronavirus on revenues. We are upbeat about the strong adoption of the SAPIEN technology and regulatory approvals received by the company. Clinician feedback on improved paravalvular leak performance of SAPIEN 3 Ultra remains favorable.

Steady improvement in TAVR procedure volumes throughout May and June and recovery rates in Europe buoy optimism. Robust demand for TruWave and gross margin expansion are impressive. Despite the pandemic-led business disruptions, the company has maintained its revenue projections and has upped its bottom-line estimates, which are encouraging.

However, the economic doldrums associated with the pandemic caused a drop in segmental as well as total revenues. Also, the operating margin contraction in the second quarter is concerning. Moreover, tough competition in the cardiac devices market and reimbursement issues persist.

Zacks Rank & Key Picks

Edwards Lifesciences currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are ResMed Inc. RMD, Exact Sciences Corporation EXAS and ViewRay, Inc. VRAY. All the three stocks carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for ResMed’s fourth-quarter fiscal 2020 revenues is pegged at $710.9 million, suggesting a year-over-year improvement of 0.9%. The same for EPS stands at 99 cents, indicating growth of 4.2% from the year-ago reported figure.

The Zacks Consensus Estimate for Exact Sciences’ second-quarter 2020 revenues is $229.6 million, implying a 14.9% increase from the year-earlier reported figure.

The Zacks Consensus Estimate for ViewRay’s second-quarter 2020 bottom line stands at a loss of 16 cents per share, suggesting a 50% improvement from the year-ago quarter.

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