Edwards Lifesciences (EW) Q4 Earnings Lag, Sales Top Estimates

Edwards Lifesciences Corporation’s (NYSE:EW) fourth-quarter 2019 adjusted earnings per share (EPS) were $1.46, missing the Zacks Consensus Estimate by 1.4%. Moreover, the figure improved 24.8% year over year.

The company’s EPS (on a reported basis) was $1.32 in the quarter, marking a massive surge from the year-ago figure of 3 cents.

For 2019, adjusted EPS was $5.57, up 18.5% from the year-ago number. The figure missed the Zacks Consensus Estimate by 0.5%.

Sales Details

Fourth-quarter net sales improved 20% year over year to $1.17 billion and surpassed the Zacks Consensus Estimate by 1.7%. Additionally, underlying sales increased 19%.

Revenues were primarily driven by significant growth in Transcatheter Aortic Valve Replacement (TAVR) sales and strong performance of the Critical Care product line.

For the year, net sales were $4.35 billion, up 16.9% from the year-ago figure. The figure beat the Zacks Consensus Estimate by 0.5%.

Segmental Details

In the fourth quarter, sales in the TAVR product group amounted to $763 million, up 30% from the prior-year figure, both on reported and underlying basis.

In the United States, total TAVR procedures rose around 40% year over year. Outside the United States, total TAVR procedures grew in the high-teens on a year-over-year basis.

Surgical Structural Heart’s sales in the quarter totaled $205 million, down 1% from the year-ago quarter on a reported basis and down 3% on an underlying basis. Per management, the downside resulted from lower surgical aortic valve procedures in the United States as TAVR adoption increased.

Critical Care sales totaled $199 million in the fourth quarter, up 12% from the year-ago quarter on a reported basis and up 8% on an underlying basis.The upside was driven by robust demand for the HemoSphere advance monitoring platform and continued adoption of Smart Recovery.

Transcatheter Mitral and Tricuspid Therapies (TMTT) sales totaled $7 million, adversely impacted by the voluntary PASCAL system field corrective action completed in the fourth quarter.

Margins

In the fourth quarter, gross margin contracted 37 bps to 75.6%. Favorable impacts from foreign exchange rates and product mix were offset by spending in support of the new European device regulations and manufacturing variances.

SG&A expenses rose 20.5% year over year to $347 million, driven by increased field clinical personnel to support TAVR cases in the United States and TMTT cases in Europe.

R&D expenditures escalated 18.9% year over year to $194 million due to significant investments in transcatheter structural heart programs. Adjusted operating margin in the quarter contracted 31 bps to 29.5 %.

Cash Position

Edwards Lifesciences exited 2019 with cash and cash equivalents, and short-term investments of $1.5 billion compared with $0.86 billion at the end of 2018. Long-term debt at the end of 2019 was $594.4 million compared with $593.8 million at the end of 2018.

At the end of 2019, net cash provided from operating activities was $1.18 billion compared with $0.93 billion a year ago. Capital expenditure rose to $254.4 million from $238.7 million a year ago.

Guidance Impressive

For 2020, Edwards Lifesciences updated its 2020 guidance. The company now projects 2020 adjusted EPS of$6.15-$6.40, higher than $6.05-$6.30 mentioned earlier. The Zacks Consensus Estimate is pegged at $6.14, indicating a decline from the company’s guided range.

Edwards Lifesciences projects 2020 total revenues of $4.6-$5.0 billion compared with $4.5-$5.0 billion mentioned earlier. The Zacks Consensus Estimate of $4.80 billion falls within the company’s guidance.

For first-quarter 2020, the company forecasts total sales between $1.15 billion and $1.2 billion. The Zacks Consensus Estimate for the same stands at $1.14 billion, which lies below Edwards Lifesciences’ envisioned range. Adjusted EPS is anticipated between $1.49 and $1.59. The Zacks Consensus Estimate for the same is pegged at $1.47, below the company’s guided range.

Our Take

Edwards Lifesciences exited the fourth quarter on a mixed note. Globally, TAVR procedures delivered growth, led by strong therapy adoption across all geographies, particularly in the United States. We are also upbeat about robust sales growth within the Critical Care segment. Moreover, lifted 2020 EPS guidance increases investors’ optimism on the stock.

However, dismal performances in Surgical Structural Heart and TMTT segments are worrying. Also, both margins contracted in the fourth quarter. Moreover, tough competition in the cardiac devices market and reimbursement issues raise concerns.

Zacks Rank and Key Picks

Edwards Lifesciences currently has a Zacks Rank 3 (Hold). Some better-ranked stocks in the broader medical space are SeaSpine Holdings Corporation (NASDAQ:SPNE) , STERIS plc (NYSE:STE) and DexCom, Inc. (NASDAQ:DXCM) , all three currently carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for SeaSpine’s fourth-quarter 2019 revenues is pegged at $43.6 million, suggesting 14.7% growth from the prior-year reported figure. The consensus estimate for loss per share is anticipated at 44 cents, implying a 16.9% improvement from the year-ago reported number.

The Zacks Consensus Estimate for STERIS’s third-quarter fiscal 2020 revenues is pegged at $749.7 million, hinting at a 7.7% increase from the year-earlier reported figure. The consensus estimate for adjusted earnings per share stands at $1.43, indicating a 13.5% rise from the year-ago reported figure.

The Zacks Consensus Estimate for DexCom’s fourth-quarter 2019 revenues is pegged at $457 million, suggesting 35.2% growth from the prior-year reported figure. The consensus estimate for adjusted earnings per share stands at 72 cents, implying a 33.3% improvement from the year-earlier reported figure.

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