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ISRG Q3 Earnings Beat But Down Y-o-Y

Zacks Equity Research

Intuitive Surgical Inc. (ISRG) reported net earnings of $156.8 million or $3.99 per share for the third quarter of the year, beating the Zacks Consensus Estimate of $3.38 per share. However, net earnings went down 14.3% from $183.0 million or 10.5% from $4.46 per share in the third quarter of 2012.

Revenues in the quarter dipped 7% to $499 million, missing the Zacks Consensus Estimate of $527 million. The decline was attributable to modest growth in benign gynecology, along with changing capital spending priorities in hospitals due to the implementation of the Affordable Care Act.

Operating income fell 20.3% to $174.2 million from $218.5 million in the year-ago quarter. With this, operating margin declined 290 basis points to 34.9% from 37.8% a year ago.

Segment Results

Revenues from Instruments and Accessories grew 10% to $239 million in the quarter. Thanks to the 16% year-over-year rise in da Vinci surgical procedures on the back of growth in general surgery, U.S. gynecology and international urology procedures.

Revenues from Systems plunged 32% to $159 million due to poor da Vinci Surgical Systems sales. ISRG sold 54 less da Vinci Surgical systems compared with 155 systems in the prior-year quarter.

Revenues from Services rose 15% to $101 million. The rise can be attributable to higher installed base of da Vinci Surgical Systems.

Financial Position

Intuitive Surgical had cash, cash equivalents and investments of $2.5 billion as of Sep 30, 2013, down from $2.9 billion as of Dec 31, 2012. The company spent $694 million to repurchase about 1.74 million shares in the quarter, reflecting an average price of $398.87.

Our Take

Intuitive Surgical continues to be affected by stiff hospital capital spending environment and sluggish benign gynecologic procedures in the U.S. These are taking a toll on the sale of its da Vinci Surgical systems.

Further, long-term controversies about robotic surgeries hurt the stability of the stock. Use of surgical robots is riddled with several complications and customer complaints. Several reports have revealed that patients suffered complications or injuries owing to the robotic-assisted surgeries.

Despite the beat, investors do not look happy due to lower profits in the third quarter. This has reflected in the 0.5% fall in stock price after the market closed yesterday.

Being a Zacks Rank #3 (Hold) stock, we remain on the sidelines about ISRG. Currently, we prefer other scrips from medical instruments industry and they include AngioDynamics Inc. (ANGO), CryoLife Inc. (CRY) and MAKO Surgical Corp. (MAKO). All of them carry a Zacks Rank #2 (Buy).

Read the Full Research Report on ISRG
Read the Full Research Report on ANGO
Read the Full Research Report on MAKO
Read the Full Research Report on CRY

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