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Edwards Lifesciences (EW) Beats on Q3 Earnings, Margins Up

Edwards Lifesciences Corporation’s EW third-quarter 2020 adjusted earnings per share (EPS) of 51 cents beat the Zacks Consensus Estimate by 13.3%. Moreover, the figure improved 8.5% year over year.

GAAP EPS was 52 cents in the quarter compared with the year-ago EPS of 43 cents, reflecting a 20.9% improvement.

Sales Details

Third-quarter net sales were $1.14 billion, up 4.3% year over year on a reported basis. On an underlying basis, the growth was 3.7%. Moreover, the metric surpassed the Zacks Consensus Estimate by 5.5%.

Revenues were primarily driven by continued adoption of the company’s life-saving technologies across the globe despite challenges arising from the coronavirus-led business disruptions

Segmental Details

In the third quarter, global sales in the Transcatheter Aortic Valve Replacement (“TAVR”) product group amounted to $744.6 million, up 6.4% from the prior-year figure on reported basis. On an underlying basis, the growth was 5.7%. Average selling prices were stable worldwide. In the United States, total TAVR sales increased in the mid-single digits year over year. Outside the United States, total TAVR sales increased in the high-single digits year over year, on an underlying basis.

Transcatheter Mitral and Tricuspid Therapies (“TMTT”) sales totaled $12.1 million, up 23.7% from the prior-year figure on a reported basis. On an underlying basis, the improvement was 19.8%. The segment was driven by resumption of activity in new centers in Europe and increased commercial procedures. The company continued to register strong momentum on increased adoption of the PASCAL mitral valve system in Europe.

Edwards Lifesciences Corporation Price, Consensus and EPS Surprise

 

Edwards Lifesciences Corporation price-consensus-eps-surprise-chart | Edwards Lifesciences Corporation Quote

Surgical Structural Heart’s sales in the quarter totaled $203.3 million, down 0.3% from the year-ago quarter on a reported basis and 1% on an underlying basis. Per management, despite the downside, it was observed that patients were willing to seek heart valve surgery and hospitals were able to manage surgical-patient flow efficiently. Further, ongoing prioritization of heart surgery in many hospitals also contributed to rebounding case volumes.

Critical Care sales totaled $180.9 million in the third quarter, up 0.4% from the year-ago quarter on a reported basis and 0.3% on an underlying basis. The robust demand for the company's products used in cardiac surgeries was offset by the COVID-19-led impact of delayed elective procedures.

Margins

In the third quarter, gross profit was $859.9 million, up 7.3%. Gross margin expanded 210 basis points (bps) to 75.4%.

The company-provided adjusted gross margin was 75.5%, reflecting a year-over-year contraction of 40 bps. This included incremental costs associated with responding to COVID-19 and a negative impact from foreign exchange, partially offset by improved manufacturing efficiencies.

Selling, general, and administrative expenses rose 0.3% year over year to $307.2 million, primarily resulting from the increased transcatheter structural heart field personnel-related expenses, including expanding the TMTT field organization in Europe. However, this was offset by reduced spending resulting from COVID-19 impacts.

Research and development expenditures was $195.5 million, flat year over year. This primarily included increased investments in transcatheter mitral valve replacement clinical trials, partially offset by lower TAVR clinical trial expenses and reduced spending resulting from COVID-19. These developments drove operating costs up by 0.2% to $502.7 million.

During the reported quarter, operating income was up 19.1% year over year to $357.2 million. Accordingly, operating margin expanded 390 bps to 31.3%.

Cash Position

Edwards Lifesciences exited the third quarter of 2020 with cash and cash equivalents, and short-term investments of $1.29 billion compared with $1.16 billion at the end of the second quarter of 2020. Long-term debt at the end of third-quarter 2020 was $594.9 million compared with $594.7 million at the end of the second quarter of 2020.

Cumulative net cash provided by operating activities at the end of the third quarter was $216 million compared with $437 million a year ago. Capital expenditure rose to $103 million from $76 million a year ago.

Guidance

For the fourth quarter of 2020, Edwards Lifesciences expects year-over-year underlying sales growth similar to the third quarter. The Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $1.26 billion.

For the year, the company projects the bottom line in the range of $1.85-$1.95, raising the lower end of the previously provided outlook for the adjusted EPS of $1.75-$1.95. The Zacks Consensus Estimate for the same is currently pegged at $1.86.

Our Take

Edwards Lifesciences exited the third quarter with better-than-expected results despite the challenging business environment arising from the pandemic. We are upbeat about the strong adoption of the INSPIRIS aortic surgical valve and the KONECT aortic valve conduit.

Clinician feedback on improved paravalvular leak performance of SAPIEN 3 Ultra remains favorable.The continued strong adoption of the SAPIEN 3 Ultra platform looks encouraging. Steady improvement in TAVR procedure volumes buoys optimism. Robust demand for TruWave and gross margin expansion are impressive. Despite the pandemic-led business disruptions, the company has upped its bottom-line estimates, which are encouraging.

However, the expectation of a continued fall in Surgical Structural Heart sales for the full-year 2020 is concerning. Further, the continued choppy market conditions due to the unrelenting spread of the coronavirus are worrying. Moreover, tough competition in the cardiac devices market and reimbursement issues persist.

Zacks Rank & Key Picks

Edwards Lifesciences currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are IDEXX Laboratories, Inc. IDXX, Insulet Corporation PODD and Quidel Corporation QDEL.

The Zacks Consensus Estimate for IDEXX’s third-quarter 2020 revenues is pegged at $666.7 million, suggesting a year-over-year improvement of 10.1%. The same for EPS stands at $1.42, indicating growth of 14.5% from the year-ago reported figure. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Insulet’s third-quarter 2020 revenues is pegged at $220.9 million, implying 14.9% increase from the year-earlier reported figure. The company currently sports a Zacks Rank #1.

The Zacks Consensus Estimate for Quidel’s third-quarter 2020 revenues is pegged at $476.1 million, suggesting a year-over-year improvement of 276.4%. The same for EPS stands at $4.58, indicating growth of 554.3% from the year-ago reported figure. The company currently flaunts a Zacks Rank #1.

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