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Edwards Lifesciences (EW) Q1 Earnings Beat, EPS View Raised

Zacks Equity Research

Edwards Lifesciences Corporation’s EW first-quarter 2019 adjusted earnings per share (EPS) came in at $1.32. The company posted reported EPS of $1.18, which increased 22.9% year over year.

Adjusted EPS came well ahead of the Zacks Consensus Estimate of $1.23. Moreover, the figure improved 8.2% year over year primarily on growth in all businesses.

Sales Details

First-quarter net sales improved 11% to $993 million and surpassed the Zacks Consensus Estimate of $988.9 million. Underlying sales increased 9%.

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

Edwards Lifesciences Corporation Price, Consensus and EPS Surprise

 

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

Segmental Details

In the first quarter, sales in the TAVR product group amounted to $597.7 million, up 8.5% from the prior-year quarter’s figure. TAVR underlying sales grew 10% in the quarter. Per management, total TAVR procedures increased low-double-digits. However, management is optimistic about the long-term growth opportunities of TAVR. TAVR’s strong adoption in Japan, driven by SAPIEN 3, is encouraging.

In Europe too, TAVR sales grew low-double-digits. In fact, Edwards Lifesciences is planning a commercial introduction of the SAPIEN 3 Ultra and CENTERA systems in Europe, with focus on high procedural success rates. Additionally, the company's PARTNER 3 low-risk trial demonstrated superiority for the SAPIEN 3 valve over outcomes with surgery.

Surgical Structural Heart sales in the quarter totaled $214.7 million, increasing 19.6% from the prior-year quarter’s figure and 3.5% on an underlying basis. Growth in the reported quarter was driven by the sales of premium products, particularly through adoption of the INSPIRIS RESILIA aortic valve that drove an increasing share of surgical aortic valve procedures.

Critical Care sales totaled $176.3 million in the reported quarter, up 7.7% from first-quarter 2018 figure. On an underlying basis, sales grew 11%. Per management, the unit was boosted by a surge in HemoSphere advanced monitoring platform sales in the United States.

TMTT sales totaled $4.3 million, up significantly from the year-ago quarter’s figure of $0.5 million. The year-over-year uptick can be attributed 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, and plans to achieve significant clinical and regulatory milestones in 2019. Additionally, the company estimates global TMTT opportunity to reach $3 billion by 2024.

Earlier this year, the company's PASCAL transcatheter valve repair system received a CE Mark.

Margins

In the first quarter, gross margin expanded 280 basis points (bps) to 76.7%, owing to favorable impacts from foreign exchange rates and product mix. In the quarter, foreign exchange positively impacted the gross margin by 180 bps.

SG&A expenses rose 9.5% year over year to $280.3 million, driven primarily by field personnel-related expenses, partially offset by the weakening of the euro against the U.S. dollar.

R&D expenditures increased 19.7% year over year to $171.4 million due to increased investments in the company's innovative transcatheter structural heart programs, including an increase in the clinical research for the PASCAL system.

However, operating margin in the quarter contracted 60 bps to 27.6%. Per management, adjusted operating income in the quarter was $310 million, up 3.5% year over year.

Cash Position

Edwards Lifesciences exited the first quarter of 2019 with cash and cash equivalents, and short-term investments of $963 million compared with $714 million at the end of 2018. Long-term debt at the end of the first quarter was $594 million compared with $593.8 million at 2018-end.

Cash flow from operating activities was $1.5 million in the first quarter. Capital expenditures came in at $42.2 million for the same period. During the quarter, average diluted shares outstanding totaled 212.2 million.

Guidance Impressive

For 2019, Edwards Lifesciences raised adjusted EPS guidance to $5.10-$5.35 from the earlier view of $5.05-$5.30. The Zacks Consensus Estimate is pinned at $5.22, within the guided range.

The company continues to expect revenues of $3.9-$4.3 billion. The Zacks Consensus Estimate stands at $4.14 billion within the projected range.

For second-quarter 2019, the company projects total sales between $1.02 billion and $1.08 billion. The Zacks Consensus Estimate stands at $1.04 billion which lies within the projected band.

For the second quarter, adjusted EPS is expected between $1.27 and $1.37. The Zacks Consensus Estimate is pegged at $1.33, within the guided range.

Our Take

Edwards Lifesciences exited the first quarter on a solid note. Globally, TAVR procedures delivered growth. Also, the company is optimistic about the plan of a commercial launch of SAPIEN 3 Ultra and CENTERA systems in Europe. Moreover, improving gross margins increase investor’s optimism in the stock.

However, operating margin contracted in the first quarter. Also, tough competition in the cardiac devices market and reimbursement issues raise concerns.

Zacks Rank

Edwards Lifesciences currently has a Zacks Rank #2 (Buy).

Upcoming MedTech Releases

Investors interested in other stocks from the broader medical space may also consider Bio-Rad Laboratories, Inc. BIO, ICU Medical Inc. ICUI and DENTSPLY SIRONA Inc. XRAY.

Bio-Rad is scheduled to release first-quarter 2019 results on May 8. The Zacks Consensus Estimate for the quarterly adjusted EPS is pegged at $1.12. The consensus estimate for revenues stands at $548.8 million. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ICU Medical is scheduled to release first-quarter 2019 results on May 9. The Zacks Consensus Estimate for the period’s adjusted EPS is pegged at $2.18. The consensus estimate for revenues stands at $321.1 million. The stock carries a Zacks Rank #2.

DENTSPLY SIRONA is slated to release first-quarter 2019 results on May 3. The Zacks Consensus Estimate for the quarterly adjusted EPS stands at 38 cents. The consensus estimate for revenues is pegged at $917.1 million. The stock has a Zacks Rank of 2.

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