Edwards Lifesciences (EW) Q4 Earnings Fall Shy of Estimates

Edwards Lifesciences Corporation’s EW fourth-quarter 2020 adjusted earnings per share (EPS) of 50 cents lagged the Zacks Consensus Estimate by 5.7%. However, the figure improved 2% year over year.

GAAP EPS was 49 cents in the quarter compared with the year-ago EPS of 44 cents, reflecting an 11.4% improvement.

Full-year adjusted EPS was $1.86, unchanged from the year-ago number. Again, the metric lagged the Zacks Consensus Estimate by 1.6%.

Full-year GAAP EPS was $1.30, reflecting a 20.7% decline from the year-earlier $1.64.

Sales Details

Fourth-quarter net sales were $1.19 billion, up 1.5% year over year on a reported basis. On an underlying basis, the growth was roughly unchanged. Moreover, the metric surpassed the Zacks Consensus Estimate by 0.7%.

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

Full-year revenues were $4.39 billion, reflecting a 0.9% increase from the year-ago period (up 0.6% on an underlying basis). Revenues surpassed the Zacks Consensus Estimate by 0.2%.

Segmental Details

In the fourth quarter, global sales in the Transcatheter Aortic Valve Replacement (“TAVR”) product group amounted to $776.2 million, up 1.8% from the prior-year figure on reported basis. On an underlying basis, the growth was 0.3%. Average selling prices were stable worldwide. In the United States, total TAVR sales declined in 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 $13.1 million, up 83.6% from the prior-year figure on a reported basis. On an underlying basis, the improvement was 74.1%. The company continued to register strong momentum on increased adoption of the PASCAL leaflet repair system in Europe. The company, during the reported quarter, continued with the introduction of PASCAL Ace for mitral and tricuspid patients, which boosted the top line.

Edwards Lifesciences Corporation Price, Consensus and EPS Surprise

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 $204.2 million, down 0.5% from the year-ago quarter on a reported basis and 2.2% on an underlying basis. Per management, the downside resulted from hospitals experiencing an influx of COVID-19 patients, thus limiting surgical valve procedures. However, this was partially offset by the robust adoption of the company’s latest premium technologies, including the Premium RESILIA tissue valves and the KONECT aortic valved conduit. Further, the continued growth of Inspiris valve utilization in all regions drove the top line.

Critical Care sales totaled $198.2 million in the fourth quarter, down 0.6% from the year-ago quarter on a reported basis and 2% on an underlying basis. The fall in revenues resulted from the decline in HemoSphere orders in the United States as hospitals limited their capital spending. However, this was partially offset by the robust sales of TruWave disposable pressure monitoring devices used in the ICU on the back of increased COVID-19-led hospitalizations late in the quarter in both the United States and Europe.

Margins

In the fourth quarter, gross profit was $895.4 million, up 0.8%. Gross margin contracted 49 basis points (bps) to 75.1%.

The company-provided adjusted gross margin was 75.3%, reflecting a year-over-year contraction of 50 bps. This resulted from the negative impact of foreign exchange and incremental costs associated with responding to COVID-19, partially offset by lower performance-based compensation.

Selling, general, and administrative expenses fell 2.5% year over year to $338.5 million, primarily due to lower pandemic-led spending and lower performance-based compensation. This was partially offset by the positive impact of foreign exchange.

Research and development expenditures were $195.7 million, up 0.9% year over year. This primarily resulted from increased investments in transcatheter mitral valve replacement and costs associated with discontinuing the SUTRAFIX program, partially offset by lower performance-based compensation. These developments drove operating costs down by 1.3% to $534.2 million.

During the reported quarter, operating income was up 4.2% year over year to $361.2 million. Accordingly, operating margin expanded 77 bps to 30.3%.

Cash Position

Edwards Lifesciences exited 2020 with cash and cash equivalents of $1.183 billion compared with $1.179 billion recorded at the end of 2019. Long-term debt was $595 million at the end of 2020, up from $594.4 million at the end of 2019.

Cumulative net cash provided by operating activities at the end of the year was $400 million compared with $399 million a year ago. Capital expenditure rose to $113 million from $71 million a year ago.

2021 Guidance Issued

For the first quarter of 2021, Edwards Lifesciences expects the adjusted EPS in the range of 43-50 cents. The Zacks Consensus Estimate for the same is currently pegged at 50 cents, which matches the upper end of the company-provided guidance.

The company projects first-quarter 2021 sales revenues to be in the range of $1.1-$1.2 billion. The Zacks Consensus Estimate for the same is currently pegged at $1.21 billion.

For 2021, the company projects the adjusted EPS in the range of $2-$2.20. The Zacks Consensus Estimate for the same is currently pegged at $2.13.

For the year, the company anticipates the sales to be in the range of $4.9-$5.3 billion. The Zacks Consensus Estimate for the same is currently pegged at $5.11 billion.

Our Take

Edwards Lifesciences exited the fourth quarter of 2020 with better-than-expected revenues 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. Continued favorable clinician feedback on improved paravalvular leak performance of SAPIEN 3 Ultra looks impressive. The continued strong adoption of the SAPIEN 3 Ultra platform looks encouraging as well. Steady improvement in TAVR procedure volumes worldwide and receipt of favorable physician feedback for PASCAL Ace buoy optimism. Robust demand for TruWave and operating margin expansion are impressive. Despite the pandemic-led business disruptions, the company has issued its financial guidance for 2021 and also expects to register underlying sales growth in high-single digits for its Surgical Structural Heart business for the year, which are encouraging.

However, the lower-than-expected earnings during the reported quarter is concerning. Further, the continued choppy market conditions due to the unrelenting spread of coronavirus are worrying. Gross margin contraction also does not bode well for the company. Moreover, tough competition in the cardiac devices market and reimbursement issues persist.

Zacks Rank & Stocks to Consider

Edwards Lifesciences currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space are IDEXX Laboratories, Inc. IDXX, Align Technology, Inc. ALGN and Omnicell, Inc. OMCL.

The Zacks Consensus Estimate for IDEXX’s fourth-quarter 2020 revenues is pegged at $679.3 million, suggesting a year-over-year improvement of 12.2%. The same for EPS stands at $1.43, indicating growth of 37.5% 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 Align Technology’s fourth-quarter 2020 revenues is pegged at $781.9 million, implying 20.3% increase from the year-earlier reported figure. The same for EPS stands at $2.13, indicating growth of 39.2% from the year-ago reported figure. The company currently carries a Zacks Rank #2.

The Zacks Consensus Estimate for Omnicell’s fourth-quarter 2020 EPS is currently pegged at 79 cents, indicating growth of 2.6% from the year-ago reported figure. The company currently flaunts a Zacks Rank #1.

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