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Alcon (ALC) Q3 Earnings Surpass Estimates, Sales Guidance Cut

Alcon Inc. ALC delivered core earnings per share (EPS) of 50 cents for the third quarter of 2022. Earnings were down 7% from the year-ago quarter’s figure (up 14% at constant exchange rate or CER). The figure exceeded the Zacks Consensus Estimate by 4.2%. Alcon’s “core” results are based on non-IFRS (International Financial Reporting Standards) measures.

ALC’s third-quarter reported EPS of 23 cents compared favorably with the year-ago quarter's break-even figure.

Revenues in Detail

Alcon’s net sales to third parties in the third quarter were $2.12 billion, lagging the Zacks Consensus Estimate by 0.7%. The top line increased 2% from the year-ago quarter’s levels (up 9% at CER).

In the third quarter, Total Surgical (consisting of implantables, consumables and equipment/other) sales amounted to $1.21 billion, up 15% at CER. Alcon registered implantables growth, driven by the strength of its comprehensive portfolio of PCIOLs, including PanOptix and Vivity.

Total Vision Care (comprising contact lenses and ocular health) reported sales of $908 million, up 5% year over year at CER. In the quarter, higher demand in both the U.S. and international markets was partially offset by adverse foreign exchange impact to the tune of 700 basis points.

Margins

The cost of net sales in the quarter was $958 million, up 7.4% year over year. Core gross profit fell 1.3% to $1.31 billion in the reported quarter. Core gross margin contracted 190 basis points (bps) to 61.2% in the third quarter of 2022.

The core operating margin was 17.1% in the quarter, marking a year-over-year contraction of 60 bps at CER.

Financial Position

Alcon exited third-quarter 2022, with cash and cash equivalents of $1.18 billion compared with $1.03 billion at the end of Q2.

Cumulative net cash flow from operating activities at the end of the quarter was $872 million compared with $958 million a year ago. For the same period, free cash flow totaled $475 million compared with $578 million in the year-ago quarter.

2022 View

Alcon updated its 2022 guidance, assuming global markets grow at slightly above historical rates, inflation remains at current levels throughout the remainder of the year and the supply chain does not materially deteriorate. Also, the exchange rates as of mid-October 2022 are expected to prevail through year-end. The company has not considered the impact of its recently-completed acquisition of Aerie Pharmaceuticals.

The company projects net sales in the range of $8.5-$8.7 billion (down from the earlier projection of $8.6-$8.8 billion), indicating growth of 10-11% at CER from the 2021 level (9-11% expected previously). The Zacks Consensus Estimate for ALC’s revenues is pegged at $8.74 billion.

The company also reduced the upper end of its core earnings per share expectations to the range of $2.20-$2.25 ($2.20-$2.30 previously), suggesting growth of 21-24% from 2021 levels (19-24%). The Zacks Consensus Estimate for ALC’s earnings is currently pegged at $2.26 per share.

Our Take

Alcon exited the third quarter with earnings beating the Zacks Consensus Estimate but revenues missing the same. Despite the macroeconomic concerns, the company reported strong underlying third-quarter performance within its business. Its robust innovation pipeline is delivering solid results as evidenced by the strength in its comprehensive portfolio of PCIOLs, including PanOptix and Vivity.

However, given the supply chain challenges, unfavorable foreign exchange impact, ongoing inflationary pressure and other macroeconomic headwinds, the company had to reduce its core net sales expectations and tighten its core earnings per share expectations for 2022.

Zacks Rank & Key Picks

Alcon currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader medical space are ShockWave Medical SWAV, AMN Healthcare Services AMN and McKesson MCK, all carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for ShockWave Medical’s EPS is stable at $2.57 for 2022 and rose from $3.42 to $3.56 for 2023 in the past 60 days. SWAV has gained 43.1% so far this year.

ShockWave Medical delivered an earnings surprise of 146.1%, on average, in the last four quarters.

Estimates for AMN Healthcare Services have improved from earnings of $11.26 to $11.43 for 2022 and $8.30 to $8.39 for 2023 in the past 60 days. AMN has declined 1.6% so far this year.

AMN Healthcare Services delivered an earnings surprise of 10.96%, on average, in the last four quarters.

McKesson’s earnings per share estimates have increased from $24.42 to $24.75 for fiscal 2023 and $26.04 to $26.40 for fiscal 2024 in the past 60 days. MCK has gained 55.2% so far this year.

McKesson delivered an earnings surprise of 4.79%, on average, in the last four quarters.

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