Intuitive Surgical (ISRG) Beats On Q3 Earnings, View Solid

Intuitive Surgical, Inc. (NASDAQ:ISRG) reported adjusted earnings per share (EPS) of $3.43 in the third quarter of 2019, beating the Zacks Consensus Estimate of $2.96. Adjusted EPS improved 21.2% year over year.

The Zacks Rank #3 (Hold) company recorded revenues of $1.13 billion which improved 22.5% from the prior-year quarter. The figure also outpaced the Zacks Consensus Estimate of $1.06 billion.

Segment Details

Instruments & Accessories

Revenues at the segment came in at $606.2 million, reflecting a year-over-year increase of 24.7% on 20% growth in da Vinci procedure volumes.

Systems

In the reported quarter, System revenues increased 23.3% year over year to $338.6 million. Notably, the company shipped 275 da Vinci Surgical Systems in the quarter.

Services

Services revenues came in at $183.4 million, up 14.6% from the year-ago quarter.

International Sales Up

Outside the United States, revenues totaled $332 million, up 36% on a year-over-year basis. The improvement can be attributed to higher instruments and accessory revenues, driven by procedure growth and customer buying patterns.

Outside the United States, Intuitive Surgical placed 80 systems in the third quarter compared with 90 in the third quarter of 2018. Of these, 36 were in Europe, 27 in Japan, and 10 in China.

Margins

Adjusted gross profit in the reported quarter was $812.2 million, up 23.4% year over year. As a percentage of revenues, gross margin in the quarter was 72%, up 50 basis points (bps).

Adjusted operating income totaled $463.3 million, up 18.4% year over year. As a percentage of revenues, operating margin in the quarter was 41%, down 140 bps.

Guidance Updated

Intuitive Surgical now forecasts 2019 procedure growth in the range of 17% to 18%, compared with the previous 16% to 17%. The company has also raised the forecast for 2019 gross margin to 71-71.5% of revenues.

Wrapping Up

Intuitive Surgical ended the third quarter on a solid note. The flagship da Vinci procedures recorded solid growth in the quarter which drove the core Instrument & Accessories arm. In fact, management continues to expect strong procedure growth in 2019. The company looks to accelerate its business in China, which saw a solid third quarter as well. Overall international sales surged in the quarter. Management is optimistic about the recent approvals of the Ion endoluminal system, IRIS augmented reality product and the da Vinci SP Surgical system. Expansion in gross margin is an added positive.

On the flip side, contraction in operating margin is worrisome. Additionally, the da Vinci system is in the early stages of adoption in some of the markets outside the United States which is likely to impede placements. Intense competition in the global MedTech space is concerning as well.

Key Picks

Some better-ranked stocks in the broader medical space are McKesson Corporation (NYSE:MCK) , Medtronic (NYSE:MDT) and Varian Medical Systems (NYSE:VAR) . While Varian Medical sports a Zacks Rank #1 (Strong Buy), McKesson and Medtronic each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for McKesson’s second-quarter fiscal 2020 revenues is pegged at $54.94 billion, suggesting 3.5% growth from the prior-year reported figure. The same for adjusted EPS stands at $3.59.

The Zacks Consensus Estimate for Varian’s fourth-quarter fiscal 2019 revenues is pegged at $853.3 million, showing a year-over-year increase of 6.4%. The same for adjusted EPS stands at $1.21, indicating an increase of 4.3% from the year-ago reported figure.

The Zacks Consensus Estimate for Medtronic’s second-quarter fiscal 2020 revenues is pegged at $7.68 billion, suggesting 2.6% growth from the prior-year reported figure. The same for adjusted EPS stands at $1.28, implying a 4.9% improvement from the year-ago reported number.

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