Intuitive Surgical (ISRG) Q2 Earnings Beat, Procedures Robust
Intuitive Surgical ISRG reported second-quarter 2023 adjusted earnings per share (EPS) of $1.42, which beat the Zacks Consensus Estimate of $1.32 by 7.6%. The bottom line improved 24.6% year over year.
GAAP EPS in the quarter was $1.18, up 18% from the year-ago quarter’s level.
Revenue Details
This Zacks Rank #1 (Strong Buy) company reported revenues of $1.76 billion, up 15.4% from the prior-year quarter’s number. Growth in the da Vinci procedure volume contributed to the improvement, which was partially offset by foreign currency impacts. On a constant currency (cc) basis, revenues were up 17% year over year. The top line beat the Zacks Consensus Estimate by 1.4%.
Intuitive Surgical, Inc. Price, Consensus and EPS Surprise
Intuitive Surgical, Inc. price-consensus-eps-surprise-chart | Intuitive Surgical, Inc. Quote
Segmental Details
Instruments & Accessories
Revenues at the segment totaled $1.08 billion, indicating a year-over-year improvement of 20.2%. This can be attributed to da Vinci procedure’s 22% volume growth. The improvement was partially offset by COVID-19 cases and increased hospitalizations and government interventions impacting parts of Asia, particularly China. The procedure’s volume growth in the United States reflects a favorable comparison with the year-ago quarter’s number, given the impact of COVID-19 last year.
Systems
System revenues totaled $392.7 million, up 4.7% year over year. Intuitive Surgical shipped 331 da Vinci Surgical Systems compared with 279 in the prior-year quarter. The company placed 157 systems in the United States compared with 150 in the year-ago period.
Outside the country, ISRG placed 174 systems compared with 129 in the prior-year quarter. Of these, 76 were in Europe, 33 in Japan and 15 in China.
Services
Revenues from this segment amounted to $287.3 million, up 14.1% from the year-ago quarter’s level.
Margins
Adjusted gross profit was $1.2 billion, up 14.2% year over year. As a percentage of revenues, the gross margin was 68.5%, down 70 bps from the prior-year quarter.
Selling, general and administrative expenses totaled $464.3 million, up 11% year over year. The figure was 2.9% lower than our estimates of $478 million.
Research and development expenses totaled $244.4 million, up 17.9% on a year-over-year basis. The figure beat our estimates of $241 million by 1.4%.
Adjusted operating income totaled $617.6 million, up 16.3% year over year. The figure was higher than our estimates of $571.6 million. As a percentage of revenues, the operating margin was 35.2%, up 30 bps quarter over quarter.
Financial Position
Intuitive Surgical exited the second quarter with cash, cash equivalents and investments of $7.13 billion compared with $6.58 billion in the previous quarter.
Total assets increased to $13.9 billion from $13.05 billion sequentially.
Wrapping Up
ISRG ended the second quarter on a strong note, wherein both earnings and revenues beat their respective consensus mark. The company witnessed continued growth in its da Vinci procedure volume. Although COVID-19 cases adversely impacted its procedure volume in China during the quarter, the country plans to add 559 robotic systems in the coming years. Intuitive Surgical will provide some of these systems, mostly between 2024 and 2027. This will drive top-line growth significantly.
Although gross margin contracted, operating margins improved during the second quarter (as anticipated). The declining trend in operating expenses is likely to continue for the rest of 2023.
Despite better-than-expected results, shares of Intuitive Surgical declined more than 5% during after-hours trading on Jul 20, possibly reflecting a broader market trend. The company’s shares have risen 54.7% year to date compared with the industry’s 8.7% growth. The S&P 500 Index has gained 14.1% during the same time frame.
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The intense competition in the global MedTech space remains a concern.
Other Stocks to Consider
Some other top-ranked stocks in the broader medical space are OPKO Health OPK, McKesson MCK and AmerisourceBergen ABC.
OPKO Health has an estimated growth rate of 30.6% for 2023. OPK’s earnings missed estimates in two of the trailing four quarters, beat in one and met in another, delivering an average negative surprise of 127.03%. OPKO Health carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company has an Earnings ESP of +0.86%.
OPKO's shares have rallied 69.6% year to date compared with the industry’s 10.8% growth.
McKesson, carrying a Zacks Rank #2 at present, has an estimated growth rate of 14.3% for 2024. MCK’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 4.48%. The company has an Earnings ESP of +1.93%.
McKesson's shares have risen 11.6% year to date compared with the industry’s 14.8% growth.
AmerisourceBergen, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 8.9%. ABC’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 3.14%. The company has an Earnings ESP of +0.86%.
AmerisourceBergen's shares have rallied 16.7% year to date compared with the industry’s 14.8% growth.
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