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Edwards Lifesciences (EW) Beats on Q3 Earnings, Ups EPS View

Zacks Equity Research

Edwards Lifesciences Corporation’s EW third-quarter 2019 adjusted earnings per share (EPS) came in at $1.41, outpacing the Zacks Consensus Estimate by 15.6%. Moreover, the figure improved 31.8% year over year, primarily on growth in all businesses.

The company reported EPS of $1.30, which also increased 22.6% year over year.

Sales Details

Third-quarter net sales improved 20.7% year over year to $1.09 billion and surpassed the Zacks Consensus Estimate by 5.5%. Additionally, underlying sales increased 19%.

Revenues were primarily driven by significant growth in Transcatheter Aortic Valve Replacement (TAVR), Transcatheter Mitral and Tricuspid Therapies (TMTT) sales and strong performance by the Surgical Structural Heart and Critical Care product lines.

Segmental Details

In the third quarter, sales in the TAVR product group amounted to $700 million, up 26% from the prior-year reported figure. Further, TAVR underlying sales grew 27% in the quarter. Per management, this solid performance can be attributed to the strong therapy adoption across all geographies with notable strength in the United States.

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

In the United States, total TAVR procedures surged around 30% year over year. This was stronger than expected following the recent FDA indication expansion of SAPIEN 3 and SAPIEN 3 Ultra systems. In Europe, TAVR sales improved in the teens from the year-ago quarter. Outside the United States and Europe, the company is experiencing a robust TAVR adoption, driven by SAPIEN 3 performance.

Surgical Structural Heart sales in the quarter totaled $204 million, up 11% from the prior-year quarter’s figure and 3% higher on an underlying basis. Growth in the reported quarter was boosted by sales of premium products, particularly through adoption of the INSPIRIS RESILIA aortic valve that drove the adoption of surgical aortic valve procedures.

Critical Care sales totaled $180 million in the third quarter, up 10% from the year-ago quarter reportedly and 7% improvement came on an underlying basis. Per management, all the product categories contributed to this upside, bolstered by substantial growth in HemoSphere advanced monitoring platform sales.

TMTT sales totaled $10 million, primarily attributable to strong commercial sales of the PASCAL transcatheter mitral system in Europe. Notably, Edwards Lifesciences continues to invest in its transcatheter mitral and tricuspid portfolio as well as plans to achieve significant clinical and regulatory milestones in 2019. For 2019, Edwards Lifesciences now expects TMTT revenues to lie below $40 million.

Margins

In the third quarter, gross margin contracted 200 bps to 73.3%. Favorable impacts from foreign exchange rates and product mix were offset by spending in support of the new European device regulations and manufacturing variances.

SG&A expenses rose 13.6% year over year to $306.2 million, induced primarily by increased transcatheter structural heart field personnel-related expenses including expansion of the transcatheter mitral and tricuspid therapy field organization in Europe.

R&D expenditures escalated 13.6% year over year to $306.2 million due to significant investments in transcatheter structural heart programs.

However, operating margin in the quarter expanded 155 bps to 17.3% on 32.6% rise in operating income to $189 million.

Cash Position

Edwards Lifesciences exited the third quarter of 2019 with cash and cash equivalents, and short-term investments of $1.36 billion compared with $934.3 million at the end of the second quarter. Long-term debt at the end of the third quarter was $594.2 million compared with $594.1 million at second-quarter end.

Year-to-date cash flow from operating activities was $780 million compared with $633.8 million a year ago. Year-to-date capital expenditures rose to $182.9 million from $181.1 million a year ago.

Guidance Impressive

For 2019, Edwards Lifesciences has raised its adjusted EPS guidance to $5.50-$5.65 from the earlier view of $5.20-$5.40. The Zacks Consensus Estimate is pegged at $5.33, indicating a decline from the guided range.

The company now projects total revenues around the upper end of its earlier-provided guidance of $4-$4.3 billion. The Zacks Consensus Estimate of $4.23 billion falls within the expected range.

For fourth-quarter 2019, the company forecasts total sales between $1.12 billion and $1.16 billion. The Zacks Consensus Estimate stands at $1.12 billion, which lies at the lower end of the envisioned range. Adjusted EPS is anticipated between $1.40 and $1.55. The Zacks Consensus Estimate of $1.40 comes in at the lower end of the guided range.

Our Take

Edwards Lifesciences exited the third quarter on a solid note. Globally, TAVR procedures delivered growth. According to the company, sales were significantly higher than expected following the sturdy PARTNER 3 trial evidence, leading to the recent FDA indication expansion of SAPIEN 3 and SAPIEN 3 Ultra systems. 

Moreover, lifted 2019 guidance increases investors’ optimism on the stock.

However, gross margin contracted in the third quarter. Moreover, tough competition in the cardiac devices market and reimbursement issues raise concerns.

Zacks Rank

Edwards Lifesciences currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Picks

Some better-ranked stocks in the broader medical space are Mckesson MCK, ResMed RMD and Syneos Health SYNH. While ResMed sports a Zacks Rank #1 (Strong Buy), the other two carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for McKesson’s second-quarter fiscal 2020 revenues is pegged at $54.94 billion, suggesting 3.5% growth from the prior-year reported figure. The same for adjusted EPS stands at $3.59.

The Zacks Consensus Estimate for ResMed’s first-quarter fiscal 2020 revenues is pegged at $657.2 million, indicating 11.7% increase from the prior-year reported number. The same for adjusted earnings per share stands at 87 cents, implying a rise of 7.4% from the year-ago reported figure.

The Zacks Consensus Estimate for Syneos’ third-quarter fiscal 2019 revenues is pegged at $1.18 billion, suggesting 6.03% growth from the year-earlier reported figure. The same for adjusted earnings per share stands at 72 cents, implying a 5.3% improvement from the year-ago reported number.

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