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Alcon (ALC) Vision Care Sales Robust, Margin Pressure Persists

Alcon Inc. ALC has been gaining from a strong market rebound. The company’s focus on research and innovation is also encouraging. Yet, a challenging international market is a concern. The company carries a Zacks Rank #3 (Hold).

Alcon has outperformed the industry over the past year. The stock has gained 17.1% against the industry’s 3.5% decline.

Alcon exited the first quarter of 2023 with earnings and revenue beat. Within the Surgical segment, growth was driven by strong consumables and equipment sales. The company had another strong quarter despite challenging comparisons in South Korea. Excluding the impact from Korea, sales were up roughly 5% on a reported basis and approximately 9% on a constant currency basis.

The company continued with its ATIOL market leadership for another quarter with approximately half of the global market and two-thirds of the U.S. market despite increasing competitive activity. In Equipment, Alcon continued to upgrade and expand its installed base with the CENTURION and LEGION devices.

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In terms of end market, in Surgical, global cataract procedures were up mid-single digits in the first quarter. This growth varies significantly by region. Excluding the impact from Korea, global penetration was up 90 basis points versus the prior year and up 40 basis points sequentially.

Within Vision care, the upside was driven by continued growth in silicone hydrogel contact lenses, including the Precision1 and Total product families, and price increases. The company witnessed consistent growth in silicone hydrogel contact lenses, including the Precision1 and Total product families and price increases.

On the flip side, during the first quarter, Alcon net sales across all segments were marred by unfavorable currency impacts. Further, the company’s operating margin in the quarter was impacted by legal settlement costs, rising inflationary costs, acquisition and integration-related expenses and increased R&D investments, post the acquisition of Aerie Pharmaceuticals, Inc.

Alcon Price

Alcon Price
Alcon Price

Alcon price | Alcon Quote

The cost of net sales in the quarter was up 6.5% year over year. The core operating margin was 14.2% in the quarter, contracting 14 basis points year over year at CER. The company’s operating margin in the quarter was impacted by an unfavorable product mix from lower PCIOL sales in South Korea, higher R&D investment following the acquisition of Aerie and a negative 1.3 percentage point impact from currency.

Further, the ophthalmology industry is highly competitive. In both surgical and vision care businesses, Alcon faces intense competition. In the surgical business, Alcon faces a mixture of competitors, ranging from large manufacturers with multiple business lines to small manufacturers that offer a limited selection of specialized products.

The company also faces competition from providers of alternative medical therapies such as pharmaceutical companies that have the potential to disrupt core elements of its business.

Key Picks

Some better-ranked stocks in the broader medical space are AmerisourceBergen Corporation ABC, Merit Medical Systems, Inc. MMSI and Cardinal Health, Inc. CAH.

AmerisourceBergen, carrying a Zacks Rank of 2 (Buy), reported second-quarter fiscal 2023 adjusted EPS of $3.50, beating the Zacks Consensus Estimate by 6.4%. Revenues of $63.46 billion outpaced the consensus mark by 4.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AmerisourceBergen has a long-term estimated growth rate of 8.9%. ABC’s earnings surpassed estimates in all the trailing four quarters, the average being 3.1%.

Merit Medical reported first-quarter 2023 adjusted EPS of 64 cents, beating the Zacks Consensus Estimate by 16.4%. Revenues of $297.6 million surpassed the Zacks Consensus Estimate by 5.9%. It currently carries a Zacks Rank #2.

Merit Medical has a long-term estimated growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 20.2%.

Cardinal Health reported third-quarter fiscal 2023 adjusted EPS of $1.74, beating the Zacks Consensus Estimate by 17.6%. Revenues of $50.49 billion surpassed the Zacks Consensus Estimate by 1.7%. It currently carries a Zacks Rank #2.

Cardinal Health has a long-term estimated growth rate of 12.4%. CAH’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 12.3%.

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Cardinal Health, Inc. (CAH) : Free Stock Analysis Report

AmerisourceBergen Corporation (ABC) : Free Stock Analysis Report

Alcon (ALC) : Free Stock Analysis Report

Merit Medical Systems, Inc. (MMSI) : Free Stock Analysis Report

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