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Edwards Lifesciences (EW) Beats on Earnings & Sales in Q4

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Edwards Lifesciences Corp.EW reported fourth-quarter 2016 adjusted earnings per share (EPS) of 75 cents, which surpassed the Zacks Consensus Estimate by 5.6%. Adjusted earnings also improved 17.1% year over year, primarily driven by strong sales growth.

Full-year 2016 adjusted EPS came in at $2.89, up 24.5% year over year. The figure also beat the Zacks Consensus Estimate by 0.3%.

Per management, strong sales of transcatheter valves drove the bottom line.

Excluding one-time items, net income in the fourth quarter improved 12.6% or 14.1% year over year to $158.5 million or 73 cents per share, respectively.

For full-year 2016, net income improved 15.1% or 16% year over year to $569.5 million or $2.61 per share, respectively.

Edwards Lifesciences Corporation Price, Consensus and EPS Surprise

Edwards Lifesciences Corporation Price, Consensus and EPS Surprise | Edwards Lifesciences Corporation Quote

Sales Details

Edwards Lifesciences' fourth-quarter sales improved 14.4% to $767.7 million. The top line also surpassed the Zacks Consensus Estimate of $759 million. Revenues were primarily driven by considerable growth in transcatheter heart valve (THV) sales as well as strong performance by the Critical Care segment.

Full-year 2016 revenues totaled $2.96 billion, which also beat the Zacks Consensus Estimate by 1.7%.

In the fourth quarter, underlying sales increased 15% (excluding the impact of foreign exchange fluctuations and the THV sales return reserve). In the U.S., sales rose 20.7% year over year to $421.5 million on an underlying basis. In the international market, underlying sales grew 8.8% to $346.2 million.

Margins

In the fourth quarter, gross margin contracted 157 basis points (bps) to 72.2% owing to reduced year-over-year benefit from foreign exchange hedge contracts and manufacturing expenses associated with capacity expansion. This was however partially offset by a profitable product mix.

SG&A expenses rose 5.1% year over year to $233.6 million on account of sales and personnel related expenses, primarily in the Transcatheter Valve (THV) segment, partially offset by the suspension of the medical device excise tax. On the other hand, R&D expenditures increased 17% year over year to $114.9 million, owing to continued investments in the company's transcatheter mitral valve and mitral valve programs including expenditure on clinical trials. Adjusted operating margin in the quarter expanded 81 bps to 26.8% as the rise in revenues outweighed the increase in operating expenses.

Cash Position

Edwards Lifesciences exited fiscal 2016 with cash and cash equivalents and short-term investments of $1.27 billion, up from $1.22 billion at the end of 2015. Long-term debt for full-year 2016 was $822.3 million compared with $596.9 million at the end of the prior year.

Cash flow from operating activities was $201.1 million in the fourth quarter. Excluding capital spending of $63.2 million, free cash flow was $137.9 million. During the fourth quarter, management repurchased approximately 2.7 million shares for $246 million, largely to offset dilution associated with its Valtech Cardio acquisition, which closed on Jan 23. Average diluted shares outstanding during the quarter were 218 million.

2017 Guidance

Edwards Lifesciences issued guidance for 2017. For full-year 2017, the company expects sales in the range of $3.0-$3.4 billion. The Zacks Consensus Estimate for full-year revenue is $3.22 billion which is above the guidance range. Adjusted EPS is expected around $3.30-$3.45. The Zacks Consensus Estimate for full-year adjusted EPS is $3.38 which is within the company's guidance range.

For the first quarter of 2017, the company projects sales between $760 million and $800 million and adjusted earnings per share between 79 cents and 89 cents. ZCE

Our Take

Edwards Lifesciences ended the fourth quarter on a solid note, with both earnings and revenue beating the Zacks Consensus Estimate. Strong transcatheter valve sales drove the top and the bottom line significantly. We are currently looking forward to the continued strong global adoption of the company's SAPIEN 3 platform.

However, the company continued to perform poorly on its gross margin front. On the other hand, although Edwards Lifesciences' higher operating expenses might have irked investors, it is a relief to know that the higher expenses were on account of advanced initiatives adopted by the company to drive overall sales.

Nevertheless, management expects to gain traction in the ever expanding TAVR market, based on increasing preference in favor of transcatheter aortic valve replacement as well as compelling clinical evidences, leading to strong adoption of its THV therapy.

Zacks Rank & Key Picks

Edwards Lifesciences currently has a Zacks Rank #3 (Hold). Better-ranked medical stocks are Glaukos Corporation GKOS , Cardiovascular Systems CSII and Neogen Corp. NEOG . Glaukos sports a Zacks Rank #1 (Strong Buy) while Cardiovascular Systems and Neogen carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Glaukos gained over 100% in the last one year in comparison to the S&P 500's gain of only 19.2%. The company has a stellar four-quarter average earnings surprise of over 100%.

Cardiovascular Systems surged over 100% in the last one year in comparison to the S&P 500. It has a four-quarter average earnings surprise of 67.8%.

Neogen gained 27.1% in the past one year, better than the S&P 500 mark. The stock has an impressive long-term earnings growth of 16.7% for the next five years compared to the industry average of 15.2%.

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Edwards Lifesciences Corporation (EW): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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