It has been about a month since the last earnings report for Edwards Lifesciences (EW). Shares have lost about 1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Edwards Lifesciences due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Edwards Lifesciences Beats on Q1 Earnings, Cuts ’20 View
Edwards Lifesciences' first-quarter 2020 adjusted earnings per share of $1.51 beat the Zacks Consensus Estimate by 17.1%. Moreover, the figure improved 14.4% year over year.
GAAP earnings per share was $1.47 in the quarter, marking a massive surge of 24.6% from the year-ago figure of $1.18.
First-quarter net sales improved to $1.13 billion, up 14% over the prior year on both a reported and underlying basis. The metric surpassed the Zacks Consensus Estimate by 7.6%.
Revenues were primarily driven by significant growth in Transcatheter Aortic Valve Replacement (TAVR) sales and strong performance of the Critical Care product line despite challenges arising from the coronavirus outbreak toward the quarter-end.
In the first quarter, sales in the TAVR product group amounted to $742.2 million, up 24.2% from the prior-year figure on reported basis. On an underlying basis, growth was 25.2%.
In the United States, total TAVR procedures rose around 30% year over year. Outside the United States, total TAVR procedures grew in the mid-teens on a year-over-year basis. Global TAVR sales growth through early March was flat with the company's fourth-quarter global growth rate. However, the segment was affected by a fall in procedures resulting from COVID-19 disruptions in the last few weeks of the quarter. However, average selling prices were stable worldwide.
Transcatheter Mitral and Tricuspid Therapies (TMTT) sales totaled $10.5 million, registering strong momentum on increased adoption of the PASCAL mitral valve system in Europe. TMTT sales met the company’s expectations until the latter half of March when there was a sudden decline in sales due to COVID-19.
Surgical Structural Heart’s sales in the quarter totaled $193.4 million, down 9.9% from the year-ago quarter on a reported basis and 9% 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. During the latter half of March, there was a sharp decline in procedures related to COVID-19. However, the decline was partly offset by the continued adoption of the INSPIRIS surgical aortic valve.
Critical Care sales totaled $182.6 million in the first quarter, up 3.6% from the year-ago quarter on a reported basis and 0.8% on an underlying basis. The upside was driven by robust demand for the company's disposable pressure monitoring devices used in intensive care units due to the coronavirus pandemic.
In the first quarter, gross profit was $863.6 million, up 13.5%. Although foreign exchange rates had adversely impacted gross profit, the virus outbreak did not have much of an impact.
However, gross margin contracted 14 bps to 76.5%. Favorable impacts from product mix were offset by lower foreign exchange hedge gains and spending in support of the new European Medical Device regulations.
SG&A expenses rose 9.8% year over year to $307.8 million, driven by increased field clinical personnel to support TAVR cases in the United States and TMTT cases in Europe. R&D expenditures escalated 9.3% year over year to $187.4 million on continued investments in TMTT. All these expenses drove operating costs by 9.6% to $495.2 million.
During the reported quarter, operating income was $368.4 million, up 19% from the year-ago quarter’s $309.5 million. Operating margin expanded 147 bps to 32.6%.
Edwards Lifesciences exited the first quarter of 2020 with cash and cash equivalents, and short-term investments of $1.03 billion compared with $1.52 billion at the end of 2019. Long-term debt at the end of first-quarter 2020 was $594.6 million compared with $ 594.4 million at 2019-end.
First-quarter net cash provided by operating activities was $207 million compared with $1.5 million a year ago. Capital expenditure rose to $82.2 million from $42.2 million a year ago.
For 2020, sales are expected in the range of $4-$4.5 billion, down from $4.6-$5 billion announced earlier. The Zacks Consensus Estimate for 2020 revenues is currently pegged at $4.27 billion.
Full-year adjusted earnings per share is likely to be within $4.75-$5.25, significantly lower than the earlier-announced $6.15-$6.40. The Zacks Consensus Estimate for the same is currently pinned at $4.71.
Given the economic uncertainty prevailing due to the coronavirus impact, Edwards Lifesciences is facing difficulties in predicting the progression of the pandemic and the extent of the disruption to hospital procedures involving the company’s therapies. However, the company expects the pandemic’s impact to be most severe in the second quarter.
Currently, the company projects second-quarter total sales in the range of $700-$900 million. The consensus estimate for the same is currently pegged at $821.7 million.
How Have Estimates Been Moving Since Then?
Estimates revision followed a downward path over the past two months. The consensus estimate has shifted 12.09% due to these changes.
At this time, Edwards Lifesciences has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Edwards Lifesciences has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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