Edwards Lifesciences Corporation
)first-quarter 2014 adjusted earnings per share (EPS) rose
nominally by 2.7% year over year to 76 cents, reflecting a beat
of 11.8% over the Zacks Consensus Estimate. In first-quarter
fiscal 2013, the company had earned 43 cents in intellectual
property litigation compared to an expense of 4 cents in the
However, without taking into consideration the one-time items,
reported EPS for the first quarter came in at 56 cents, down
54.8% year over year.
Edwards reported sales of $522.4 million, up 5.2% year over
year (excluding the impact of foreign exchange fluctuations and
the transcatheter heart valves [THV] sales return reserve,
underlying growth was 8.0%). The top line was below the Zacks
Consensus Estimate of $524 million.
During the quarter, Edwards Lifesciences continued to add new
commercial sites and is steadily moving toward its goal of adding
45-65 new sites during 2014.
Domestically, sales amounted to $222.4 million, down 2.4% year
over year while internationally, sales were $300.0 million, up
11.6% year over year.
Revenues by Product Groups
In first-quarter 2014, surgical heart valve therapy product
group reported sales of $202.6 million, up 2.3% year over year
(up 4.3% on an underlying basis). The quarter's performance was
driven by decent unit growth, partially offset by a small decline
in average selling price (ASP).
THV product group reported sales of $189.2 million, up 11.5%
year over year (up 14.0% on an underlying basis). Outside the
U.S., sales grew by 36.4 percent (33.0 percent on an underlying
basis). However, THV product exchanges led to a net $6 million
decline in THV sales during the quarter.
Revenues of this product group were mainly driven by strong
growth in Europe on the back of greater adoption of THV. Growth
in this product category was also driven by strong procedural
growth and share gains with SAPIEN XT in Japan and the launch of
SAPIEN 3 in Feb 2014 in Europe.
Critical Care product group sales were $130.6 million, up 1.2%
year over year (up 4.6% on an underlying basis). Growth in this
category can be primarily attributed to core hemodynamic products
outside the U.S. and enhanced surgical recovery (ESR) products in
the U.S. (mainly FloTrac and ClearSight).
Edwards Lifesciences continues to expect underlying sales
growth in surgical heart valve therapy in the range of 4-7% (on
revenues of $810-$850 million), while THV and Critical Care
product groups are expected to grow at 15-20% ($700-$820 million)
and 3-6% ($535-$575 million) respectively.
In the first quarter, gross margin contracted 350 basis points
(bps) to 72.1%. Despite a more profitable product mix, margin
contraction was primarily due to reduced benefit from foreign
exchange hedges, an approximate 200 bps-impact from the THV
product exchanges, the impact from the sales return reserve and
higher manufacturing costs for new THV product launches in the
U.S. and Europe.
Selling, general and administrative expense increased 8.1%
year over year to $197.2 million (or 37.7% of sales), primarily
due to the transcatheter valve-related expenses incurred in Japan
and the U.S. coupled with increased accrual for incentive
Research and development expenditure increased 7.5% year over
year to $85.8 million or 16.4% of sales. The higher expenses were
on account of additional investments in multiple heart valve
clinical studies and transcatheter R&D projects. With higher
operating expenses, adjusted operating margin contracted 500 bps
to 17.9% in the quarter.
Edwards Lifesciences exited the fiscal with cash, cash
equivalents and short-term investments of $831.6 million compared
with $936.9 million at the end of 2013. Long-term debt of the
company was $725.4 million compared with $593.1 million at the
end of 2013.
Edwards Lifesciences repurchased shares for $300.0 million
during the quarter. The company's consistent share buyback
activity reduced outstanding shares by 6.9% from the year-ago
quarter, lending a positive impact to the bottom line.
Edwards Lifesciences revised its EPS guidance for full year
2014 to reflect the changes in the accounting treatment of
intellectual property litigation expenses. The company now
expects earnings to be in a range around $3.10 (from earlier
guidance $3.00). The change includes an assumed benefit of 10
cents from the change in the treatment of intellectual property
litigation expenses. The current Zacks Consensus estimate for EPS
is pegged at $3.04.
However, the company reiterated its full year 2014 total sales
in the band of $2.05-$2.25 billion. The current Zacks Consensus
estimate for revenues is pegged at $2.16 billion.
Additionally, 2014 free cash flow (excluding special items) is
still expected to remain within $325-$425 million.
For the second quarter of 2014, adjusted EPS is expected to
remain within 71-81 cents on revenues of $525-$565 million. The
Zacks Consensus Estimate for EPS of 76 cents and revenues of $545
million fall within the guidance range.
Edwards Lifesciences, for all good reasons, managed to be in
the news since the beginning of 2014. The company kick-started
the year with the receipt of CE mark for its SAPIEN 3 in January
and SAPIEN XT in February followed by the INTUITY Elite Valve
System winning the same in April.
However, Edwards Lifesciences delivered mixed first-quarter
2014 results with a bottom-line beat and a top-line miss.
Medtronic's comparable offering - CoreValve was granted the
U.S. Food and Drug Administration (FDA) approval in Jan 2014.
Now, with the favorable court ruling announced in Apr 2014 and
next-generation transcatheter valve SAPIEN XT in the company's
pipeline, Edwards Lifesciences is well positioned to continue
dominating and strengthening its foothold in the U.S.
transcatheter aortic heart valve market.
Edwards Lifesciences currently carries a Zacks Rank #2 (Buy).
Some other well-placed stocks in the broader healthcare sector
that warrant a look are
Myriad Genetics Inc.
). Enzymotec and Myriad Genetics sport a Zacks Rank #1 (Strong
Buy) while Amgen carries a Zacks Rank #2 (Buy).
AMGEN INC (AMGN): Free Stock Analysis Report
ENZYMOTEC LTD (ENZY): Free Stock Analysis
EDWARDS LIFESCI (EW): Free Stock Analysis
MYRIAD GENETICS (MYGN): Free Stock Analysis
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