Edwards Lifesciences Corporation
third-quarter 2013 earnings per share (EPS) rose 17.2% year over
year to 68 cents, reflecting a beat of 3.0% over the Zacks
Consensus Estimate. EPS was also ahead of the company's guided
range of 63-67 cents.
Apart from healthy sales growth, the EPS growth was led by a
lower tax rate and reduced share count. Net income increased
11.6% from the year-ago quarter to $77 million in the third
Edwards reported sales of $495.6 million, up 11% year over
year (up 13% at constant exchange rate or CER). The top line was
ahead of the Zacks Consensus Estimate of $488 million. The result
was in line company's expectations of $475−$505 million.
Domestically, sales were $232.1 million, up 19.9% year over
year while internationally, sales were $495.6 million, up 10.6%
(up 12.7% at CER) year over year. In the overseas market, sales
in Europe improved 12.7% at CER to $144.4 million while revenues
from rest of the world were up 5.4% at CER to $62.4 million.
However, sales in Japan decreased 2.2% at CER to $56.7 million.
This reflects another quarter of poor performance in Japan.
In the third-quarter 2013, surgical heart valve therapy
product group reported sales of $192 million, up 3.3% year over
year (up 6.0% at CER). The third-quarter performance reflects
solid worldwide performance with robust contributions from the
U.S. and Europe, somewhat offset by poor performance in Japan due
to competitor's product launch.
Globally, transcatheter heart valves (THV) product group
reported sales of $172 million, up 38.9% year over year (up 35.5%
at CER). Revenues of this product group were mainly driven by the
ongoing launch of the SAPIEN valve in the domestic market and
healthy growth in Europe. The growth in Europe was on the back of
greater adoption of THV, with small impact from the favorable
patent infringement ruling in Germany.
Critical care product group sales were $130.8 million, down
3.6% year over year (up 0.6% at CER). Strength in the U.S. and
Europe was offset by the continued reduction of distributor
inventories in China and the ongoing exit of the Access product
In the third quarter, gross profit increased 8.8% to $365.9
million. However, with higher manufacturing costs that the
company incurred through its preparations for the launch of
SAPIEN XT in the U.S. and the SAPIEN 3 in Europe, as well as a
reduced benefit from foreign exchange, gross margin contracted
123 basis points (bps) to 73.8%.
Selling, general and administrative expense increased 7.5%
year over year to $180.5 million (or 36.4% of sales), primarily
due to the U.S. Medical Device Excise Tax and transcatheter valve
launch related expenses in the U.S. and Japan.
Research and development expenditure increased 13.9% year over
year to $84.1 million. The higher expenses were on account of
additional investments in multiple heart valve clinical studies.
With higher operating expenses, operating margin contracted 68
bps to 20.4% in the quarter.
Edwards exited the quarter with cash, cash equivalents and
short-term investments of $757.6 million compared with $521.4
million at the end of 2012. Long-term debt of the company was
$532 million compared with $189.3 million at the end of 2012.
Operating cash flow was $147 million while capital spending
came in at $37 million. Consequently, free cash flow was $110
million in the third quarter. Edwards repurchased almost 3.1
million shares for $250 million during the quarter. The company's
consistent share buyback activity reduced outstanding shares by
5.1% from the year-ago quarter, leading to a positive impact on
the bottom line.
Following the third quarter, Edwards maintained its guidance
for 2013. Annual sales are expected in the range of $2.0−$2.1
billion. For 2013, the Zacks Consensus Estimate is pegged at
The company also retained its EPS outlook in the range of
$3.00− $3.10 for 2013. The current Zacks Consensus Estimate of
$3.06 lies within the guidance range.
Edwards surpassed the Zacks Consensus Estimate in the third
quarter with several positive takeaways. Of late, a flow of good
news for this medical device maker remains uninterrupted. After
winning a patent infringement case over medical devices major
) in Germany, Edwards disclosed that the injunction against
Medtronic's transcatheter heart valves has gone into effect on
Aug 26, 2013.
It is seen that the launch of Edwards Sapien XT in the U.S. is
almost neck to neck with that of Medtronic's CoreValve.
Meanwhile, notwithstanding the macroeconomic climate, Europe
presents a large and growing market for the valves. Further, the
market opportunity is likely to grow significantly on the back of
demographic trends and increasing awareness. Unlike the past
several quarters, the company recorded healthy performance in
Europe, especially for the THV franchise.
Besides, in Aug 2013, Edwardsdisclosed the approval of Japan's
Central Social Insurance Medical Council (Chuikyo) to provide
reimbursement for the Edwards Sapien XT transcatheter aortic
heart valve in the country (effective Oct 1, 2013).
With lucrative product approvals and expansion of geographic
foothold, the stock appears to be an attractive pick.
Edwards currently carries a Zacks Rank #3 (Sell). Other,
well-performing medical devices stocks such as
Align Technologies Inc.,
Mindray Medical International Ltd
), which carry a Zacks Rank #1 (Strong Buy), are also worth
ALIGN TECH INC (ALGN): Free Stock Analysis
EDWARDS LIFESCI (EW): Free Stock Analysis
MEDTRONIC (MDT): Free Stock Analysis Report
MINDRAY MEDICAL (MR): Free Stock Analysis
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