Alcon (ALC) Q3 Earnings Beat Estimates, Margin Improves

Alcon Inc. ALC delivered core earnings per share (EPS) of 54 cents for the third quarter of 2021, marking a 38.5% surge from the year-ago figure. The figure also exceeded the Zacks Consensus Estimate by 10.2%. Alcon’s “core” results are based on non-IFRS (International Financial Reporting Standards) measures.

Third-quarter reported EPS was at a breakeven level in contrast to a loss per share of 30 cents in the year-earlier quarter.

Revenues in Detail

Alcon’s total net sales in the third quarter were $2.08 billion, which beat the Zacks Consensus Estimate by 2.2%. The top line improved 14.6% from the year-ago number (up 14% at constant exchange rate or CER). The company reported year-over-year growthacross all sales categories in Surgical and Vision Care.

Alcon Price, Consensus and EPS Surprise

Alcon Price, Consensus and EPS Surprise

Alcon price-consensus-eps-surprise-chart | Alcon Quote

In the third quarter, Total Surgical (consisting of Implantables, Consumables and Equipment/other) recorded sales of $1.16 billion, up 17% on a reported basis (up 16% at CER). Alcon registered Implantables growth, driven by market improvements and the ongoing adoption of advanced technology intraocular lenses. Consumables growth primarily reflected market improvements from the year-ago period. Equipment/ other grew on the rising demand for cataract equipment.

Total Vision Care (comprising Contact lenses and Ocular health) reported sales of $923 million, up 12% year over year (up 11% at CER). In the quarter, growth was driven by Precision1 and Systane.

Margins

The cost of net sales in the quarter was $892 million, down 8.2% year over year. Adjusted gross profit (net sales to third parties less cost of net sales) improved 40.1% to $1.19 billion in the reported quarter. Adjusted gross margin expanded 1066 basis points (bps) to 57.2% in the third quarter of 2021.

Core operating margin, according to Alcon, was 17.7% in the quarter, driven by operating leverage as higher sales outpaced increases in SG&A. However, in the year-ago period, the company had reported an adjusted operating loss of $55 million.

Financial Position

Alcon exited the third quarter of 2021 with cash and cash equivalents of $1.57 billion compared with $1.37 billion at the end of the second quarter.

Cumulative net cash flow from operating activities at the end of the third quarter was $958 million compared with $384 million a year ago. For the same period, free cash flow was $578 million compared with $115 million a year ago.

2021 View Raised

Amid the ongoing concerns of broader macroeconomic burdens such as inflation and tightness in the supply chain, Alcon has reaffirmed its earlier-provided guidance. More specifically, the company expects to report results at the higher end of its existing 2021 guidance. The revenue projection isin the range of $8.0-$8.2 billion and core earnings per share are estimated in the range of $2.00-$2.10. The Zacks Consensus Estimate for ALC’s earnings is currently pegged at $2.06 per share on revenue estimates of $8.14 billion.

Our Take

Alcon reported better-than-expected results for third-quarter 2021. The company reported year-over-year growth across all sales categories in Surgical and Vision Care. The margin improvements buoy optimism.

The company’s current guidance continues to assume the global markets to return to 2019 levels by the end of 2021. The U.S. markets are expected to continue to grow above 2019 for the remainder of the year, and the international markets as a whole are expected to reach 2019 levels early next year (with emerging markets and countries like Japan remaining subdued).

Zacks Rank and Key Picks

The company currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader medical space that have announced quarterly results are Thermo Fisher Scientific Inc. TMO, Medpace Holdings, Inc. MEDP and West Pharmaceutical Services, Inc. WST.

Thermo Fisher reported third-quarter 2021 adjusted EPS of $5.76, which surpassed the Zacks Consensus Estimate by 23.3%. Thermo Fisher’s revenues of $9.33 billion outpaced the Zacks Consensus Estimate by 12%. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher has an estimated long-term growth rate of 14%. The company surpassed estimates in the trailing four quarters, the average surprise being 9.02%.

Medpace, currently carrying a Zacks Rank #2 (Buy), reported third-quarter 2021 adjusted EPS of $1.29, surpassing the Zacks Consensus Estimate by 20.6%. Revenues of $295.57 million beat the Zacks Consensus Estimate by 1.2%.

Medpace has an estimated long-term growth rate of 16.4%. The company surpassed estimates in the trailing four quarters, the average surprise being 11.9%.

West Pharmaceutical, carrying a Zacks Rank #2, reported third-quarter 2021 adjusted EPS of $2.06, which beat the Zacks Consensus Estimate by 13.2%. Revenues of $706.5 million outpaced the consensus mark by 3.2%.

West Pharmaceutical has an estimated long-term growth rate of 27.6%. The company surpassed estimates in the trailing four quarters, the average surprise being 29.4%.

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