Edwards Lifesciences Corporation
) has reported an adjusted EPS of 62 cents in the fourth quarter of
fiscal 2011, surpassing both the Zacks Consensus Estimate of 59
cents and the year-ago quarter's adjusted EPS of 55 cents. For the
full year, the adjusted EPS came in at $2.02, ahead of the Zacks
Consensus Estimate of $1.99 and $1.84 recorded a year ago.
Revenues increased 9.6% year over year (underlying sales growth
of 8.3%) to $430.2 million during the quarter, missing the Zacks
Consensus Estimate of $447 million. For the fiscal year, revenues
increased 16% to $1.68 billion, nominally missing the Zacks
Consensus Estimate of $1.69 billion.
Heart Valve Therapy remained the strongest segment at Edwards
with an underlying growth of 12.5% to $256.6 million during the
quarter. Transcatheter heart valve (THV) sales were $93.2 million,
up 42.7% year over year with US sales (including both clinical and
commercial) of $17.1 million. Surgical heart valve sales
increased 1.6% to $163.4 million. While sales of surgical heart
valve sales in the international market grew 7.2% on the back of
robust performance of premium products in Asia, US sales dropped
due to the introduction of a competitor's product and flat
The other segments of the company, namely Critical Care, Cardiac
Surgery Systems and Vascular recorded sales of $133.3 million
(underlying growth of 4.5%), $27.2 million (up 8%) and $13.1
million (down 3.2%), respectively. Impressive sales of the
company's advanced monitoring products as well as pressure
monitoring products continued to drive growth at the Critical Care
During the quarter, Edwards' gross margin improved 110 basis
points (bps) to 72.2% primarily due to a more profitable product
Higher expenses associated with the launch of Sapien in the US
led to a 14.7% rise in selling, general and administrative
(SG&A) expenses to $163.4 million. Besides, SG&A expenses,
as a percentage of sales, increased by 170 bps to 38%. The
company's ongoing investments in the THV program led to an 8.6%
rise in research and development (R&D) expenses to $60.7
million. However, R&D expenses, as a percentage of sales,
remained almost flat at 14%.
Operating margin declined 40 bps to 20.1% during the quarter.
Edwards' bottom line experienced a positive impact from decline in
adjusted tax rate to 15.1% from 21% in the year-ago quarter.
Edwards exited fiscal 2011 with cash and cash equivalents and
short-term investments of $450.5 million, up from $396.1 million at
the end of December 2010 and a debt of $150.4 million. Free cash
flow for the quarter was $62.4 million and the company repurchased
560,000 shares for $40.1 million.
Edwards reiterated its guidance for fiscal 2012 that was
provided during the investor conference in December 2011. Sales are
expected to record 18−22% underlying growth to reach $1.95−$2.05
billion in 2012 with adjusted EPS of $2.70−$2.80. While the company
expects to record free cash flow of $240−$260 million based on a
strong cash balance, gross margin should be around 73−75%. The
company expects THV sales of $560−$630 million in 2012,
representing underlying growth of 70−90%, with $200−$260 million of
sales generated in the US. The guidance assumes a mid-year 2012
approval of Cohort A of the Partner trial.
Meanwhile, the company expects to report revenues of $440−$460
million and adjusted EPS of 47−49 cents in the first quarter of
fiscal 2012. The company's guidance missed the current Zacks
Consensus Estimate of $464 million in revenues and earnings of 55
cents per share.
We are disappointed with Edwards missing the revenue estimates
for the fourth quarter. Besides, guidance for the first quarter was
lower than our estimates. Economic pressure in southern
Europe resulted in lower procedural volumes, which affected the
company's performance in the THV business.
As a reminder, in September, the Centers for Medicare &
Medicaid Services (
) decided to initiate a National Coverage Analysis (
) of transcatheter aortic valve replacement (TAVR) to formulate a
national coverage determination (NCD). This development has
resulted in inconsistent interpretations among the regional
Medicare contractors, which in turn led to lower than expected
sales of Sapien. Although Edwards has the first mover advantage in
the US, the competitive landscape in Europe is tough with the
Yesterday, the CMS posted on its website a proposed decision
memo for TAVR. This has set off a 30-day public comment period
after which a formal NCD will be issued in the next 90 days. As per
the memo, CMS will provide coverage only if 5 conditions are met.
These criteria might hamper the procedure growth for Sapien.
We are currently Neutral on Edwards in the long term. The stock
retains a Zacks #3 Rank ("Hold") in the short term.
EDWARDS LIFESCI (
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