Edwards Lifesciences Corporation
) reported fourth-quarter 2012 earnings per share of 77 cents, up
45.3% year over year. However, excluding the impact of one-time
items, adjusted earnings per share came in at 90 cents. This
represents a beat of 16.9% over the Zacks Consensus Estimate.
Moreover, the adjusted EPS exceeded the company's guidance for
the quarter and sailed past the year-ago earnings by 45.2%.
Growth on the sales front, margin expansion and a lower tax rate
helped Edwards exceed its EPS projection.
Adjusted EPS in 2012 was $2.69, a beat of 5.1% over the
corresponding Zacks Consensus Estimate. Moreover, 2012 adjusted
EPS exceeded the prior-year figure by 33.2% as well as the
Net sales surged 18.7% year over year (sales growth at constant
exchange rate or CER was 21.2%) to $510.5 million in the quarter,
which was within the company's guidance range. However, total
sales in the fourth quarter surpassed the Zacks Consensus
Estimate of $499 million. Growth was led by commercialization of
the Sapien technology in the domestic market and robust
performance across all operating platforms. Nonetheless,
unfavorable currency movement had dilutive impact of $9 million
on revenues in the quarter.
Full year 2012 sales increased 13.2% (16.2% at CER) to $1,899.6
million, edging past the corresponding Zacks Consensus Estimate
of $1,888 million. However, the annual sales came in at the
bottom of Edwards' outlook, in line with the company's recent
Sales from the domestic market (contributing 44.1% to total
sales) were $224.9 million, up 45.5% year over year while
international sales (contributing 55.9% to total sales) improved
3.6% to $285.6 million. In the international market, barring
Europe where sales dropped 0.8% year over year to $142.6 million,
sales from both Japan and Rest of World increased 3% to $79.2
million and 16% to $63.2 million, respectively.
Surgical Heart Valve Therapy
group recorded sales of $197.7 million, up 5.5% (at CER) on a
year-over-year basis. Surgical Heart Valve Therapy included
cardiac surgery system sales of $29.1 million, up 8.4% at CER.
Sales of surgical heart valves of $168.6 million grew 5% at CER.
While sales growth in the domestic market was 3.5%, revenues in
the overseas market grew 7.2% at CER. The robust growth in the
international market reflects the increasing adoption of Magna
Mitral Ease Valve in Japan and double-digit growth in emerging
markets. Although pricing remained stable, worldwide Average
Selling Price (ASP) decreased marginally due to accelerated
growth in emerging markets.
Transcatheter Heart Valves
(THV) sales were $161 million, up 77.2% year over year. After a
dismal performance in the third quarter, Edwards' THV sales
improved (46% on a sequential basis) on account of the ongoing
launch of Sapien valve in the U.S. THV sales in the U.S. came in
at $80.7 million, with clinical sales of $7 million (up from $5
million in the third quarter) and net stocking sales of $16
million (up from $8 million in the third quarter). Meanwhile,
revenues in the international market grew 10% at CER.
Critical Care product group
were $151.8 million, up 6.1% year over year. Vascular sales
increased 6.6% at CER to $13.8 million while Critical Care sales
improved 6% at CER to $138 million in the quarter. The
year-over-year growth was led by advanced monitoring offerings in
the domestic market and Japan.
Edwards reported gross margin of 75.4% in the reported quarter,
up 320 basis points (bps). The positive impact from foreign
exchange and favorable product mix led to gross margin
Higher expenses associated with the launch of Sapien in the
U.S. led to 8.9% rise in selling, general and administrative
(SG&A) expenses to $177.9 million. However, lower incentive
expenditure and disciplined spending ensured that as a percentage
of sales, SG&A expenses dropped 320 bps to 34.8%.
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The company's ongoing investments in various clinical trials and
pipeline development led to a 23.4% rise in research and
development (R&D) expenses to $74.9 million. R&D
expenses, as a percentage of sales, increased 60 bps to 14.7%.
Despite a rise in operating expenses, adjusted operating margin
improved 570 bps to 25.8% in the quarter.
Edwards exited 2012 with cash and cash equivalents of $310.9
million, up 81.6% year over year. The company's long-term debt
was $189.3 million, up 25.9% year over year. Edwards repurchased
4 million shares for $353.2 million in 2012.
Edwards reiterated its guidance for 2013. The company envisages
annual sales in the range of $2.1-$2.2 billion and adjusted
earnings per share in the band of $3.21 and $3.31 for 2013.
Further, Edwards expects total sales in the range of $505-$530
million for the first quarter. The company's forecast for
adjusted earnings per share for the upcoming quarter lies in the
range of 74-78 cents.
Edwards exited 2012 on a positive note. After a challenging third
quarter, the fourth quarter results surpassed expectations and
helped to boost investor sentiments. While the contagion of
economic problems affected the company's performance in Southern
Europe, the financial results from Japan and emerging markets are
encouraging. Product approvals and penetration in lucrative
markets should bolster Edwards' top-line going forward.
In light of these facts, the estimate revision trend for 2013
reflects a bullish sentiment for Edwards. Accordingly, the stock
carries a Zacks Rank #2 (Buy). Other medical stocks such as
Smith & Nephew
), carrying a Zacks Rank #1 (Strong Buy), are expected to do well
and warrant a look.