Intuitive Surgical (ISRG) Q2 Earnings Beat, Guidance Narrowed

Intuitive Surgical, Inc. (NASDAQ:ISRG) reported adjusted earnings per share (EPS) of $3.25 in the second quarter of 2019, ahead of the Zacks Consensus Estimate of $2.85. Adjusted EPS improved 17.8% year over year.

The Zacks Rank #3 (Hold) company recorded revenues of $1.1 billion which improved 20.9% from the prior-year quarter. The figure also outpaced the Zacks Consensus Estimate of $1.03 billion.

Per management, higher second-quarter revenues were driven by increased procedures and system placements.

Segment Details

Instruments & Accessories

Revenues at the segment came in at $578.5 million, reflecting a year-over-year increase of 21.5% on 17% growth in da Vinci procedure volumes.

Systems

In the reported quarter, System revenues increased 23.9% year over year to $343.8 million. Notably, the company shipped 273 da Vinci Surgical Systems in the quarter.

Services

Services revenues came in at $176.6 million, up 13.4% from the year-ago quarter.

International Sales Up

Outside the United States, revenues totaled $314 million, up 19% 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 second quarter compared with 82 in the second quarter of 2018. Of these, 30 were in Europe, 24 in Japan, and eight in China.

Margins

Adjusted gross profit in the reported quarter was $783.7 million, up 21.2% year over year. As a percentage of revenues, gross margin in the quarter was 71.3%, up 20 basis points (bps).

Adjusted operating income totaled $455.3 million, up 17.1% year over year. As a percentage of revenues, operating margin in the quarter was 41.4%, down 130 bps.

2019 Outlook

Intuitive Surgical now forecasts 2019 procedure growth in the range of 16% to 17%, compared with the previous 15% to 17%.

Full-year gross profit is expected within 70-71% of net revenues.

Wrapping Up

Intuitive Surgical ended the second 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 second quarter as well. Overall international sales also 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 DENTSPLY SIRONA (NASDAQ:XRAY) , AmerisourceBergen Corporation (NYSE:ABC) and Stryker Corporation (NYSE:SYK) . While DENTSPLY SIRONA sports a Zacks Rank #1 (Strong Buy), AmerisourceBergen and Stryker 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 DENTSPLY SIRONA’s second-quarter 2019 revenues is pegged at $1.03 billion. The same for adjusted EPS stands at 62 cents, indicating an increase of 3.3% from the year-ago reported figure.

The Zacks Consensus Estimate for AmerisourceBergen’s third-quarter fiscal 2019 revenues is pegged at $45.3 billion, suggesting 4.9% growth from the prior-year reported figure. The same for adjusted EPS stands at $1.64, implying a 6.5% improvement from the year-ago reported number.

The Zacks Consensus Estimate for Stryker’s second-quarter 2019 revenues is pegged at $3.6 billion, indicating an 8.5% rise from the year-ago reported figure. The same for adjusted EPS stands at $1.94, suggesting 10.23% growth from the year-earlier quarter's reported figure.

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