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Edwards Lifesciences (EW) Q3 Earnings Miss, Margins Rise

Edwards Lifesciences Corporation EW delivered third-quarter 2022 adjusted earnings per share (EPS) of 61 cents, missing the Zacks Consensus Estimate by 1.6%. The figure, however, improved 12.9% year over year.

Our model projected an adjusted EPS of 64 cents for Q3.

GAAP EPS was 55 cents in the quarter, up 1.9% year over year.

Sales Details

Third-quarter net sales were $1.32 billion, up 0.7% year over year on a reported basis. On an underlying basis, growth was 6.7%. The metric however missed the Zacks Consensus Estimate by 1.3%.

The third-quarter revenue compares to our estimate of $1.36 billion.

Segmental Details

In the third quarter, global sales in the Transcatheter Aortic Valve Replacement (TAVR) product group amounted to $862.3 million, up 0.5% from the prior-year quarter’s figure on a reported basis. On an underlying basis, growth was 6.1%. In the United States, TAVR procedures increased in mid-single digits year over year. However, sales were impacted primarily by persistent U.S. hospital staffing shortages and COVID headwinds in Japan.

Transcatheter Mitral and Tricuspid Therapies sales totaled $29.7 million, up 34.2% from the prior-year quarter’s figure on a reported basis. On an underlying basis, the upside was 51.7%. The company continued to register strong momentum on a portfolio of differentiated therapies, positive pivotal trial results to support approvals and adoption, and favorable real-world clinical outcomes.

Edwards Lifesciences Corporation Price, Consensus and EPS Surprise

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

Edwards Lifesciences Corporation price-consensus-eps-surprise-chart | Edwards Lifesciences Corporation Quote

Surgical Structural Heart sales in the quarter totaled $219.7 million, up 1.1% from the year-ago quarter on a reported basis and 8.2% on an underlying basis. Revenue growth was backed by increased penetration of premium RESILIA products globally.

Critical Care sales totaled $207.3 million in the third quarter, down 2.6% from the year-ago quarter on a reported basis but up 3.2% on an underlying basis. The underlying revenue uptick resulted from the increased uptake of the company's broad portfolio of Smart Recovery products, including FloTrac and ClearSight sensors with the Hypotension Prediction Index algorithm.

Margins

In the third quarter, gross profit was $1.07 billion, up 6.7%. The gross margin expanded 455 basis points (bps) to 80.8%.

Our model projected a gross margin of 79.5% for Q3.

The company-provided adjusted gross margin was 81%, a 470 basis-point expansion year over year. This increase was primarily driven by the favorable impact of the company's foreign exchange program, which comprises natural hedges and hedge contract gains to offset the sales impact of the weakening of the euro and yen against the dollar.

Selling, general and administrative expenses rose 3.5% year over year to $377.3 million. Research and development expenditures were $233.6 million, down 1.8% year over year.

During the reported quarter, operating income rose 14.8% year over year to $454.3 million. The operating margin expanded 422 bps to 34.4%.

The adjusted operating margin, according to our model, was 33.7% for Q3.

Cash Position

Edwards Lifesciences exited the third quarter of 2022, with cash and cash equivalents and short-term investments of $1.25 billion compared with $1.52 billion recorded at the end of second-quarter 2022. Long-term debt was $596.2 million at the end of the third quarter of 2022, similar to the second-quarter long-term debt level.

Guidance

The company has updated its guidance for full-year 2022.

The company expects full-year 2022 adjusted earnings per share to grow in the range of $2.40to $2.50 (compared with the lower end of its originalguidance range of $2.50-$2.65). The Zacks Consensus Estimate for the metric is pegged at $2.51.

The full-year 2022 sales expectation was reiterated in the range of $5.35-$5.55 billion. The Zacks Consensus Estimate for the same is pegged at $5.47 billion.

For the fourth quarter, Edwards projects year-over-year and sequential sales growth at CER.  The company expects reported sales and adjusted EPS to be similar to the third quarter. The Zacks Consensus Estimate for the fourth-quarter earnings is pegged at 66 cents while the same for revenues is $1.42 billion.

Our Take

Edwards Lifesciences exited the third quarter of 2022, with earnings and revenues missing the Zacks Consensus Estimate. However, the company registered year-over-year growth on both fronts.

The company registered strong underlying growth across all product groups. However, a slower-than-expected recovery of the U.S. hospital staffing trend and COVID-19 restrictions in Japan marred the growth. Adjusted EPS grew despite aggressive investment in R&D and commercial infrastructure to support new therapies.

However, the uptick in operating costs is worrying. The choppy market conditions due to the continued foreign exchange impact and COVID-related hospital staffing issues are concerning. The company updated its EPS  outlook for full-year 2022, taking these macroeconomic challenges into account.

Zacks Rank and Key Picks

Edwards Lifesciences currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Elevance Health Inc. ELV, Medpace Holdings, Inc. MEDP and Centene Corporation CNC.

Elevance Health, carrying a Zacks Rank #2 (Buy), reported third-quarter 2022 adjusted EPS of $7.53, which beat the Zacks Consensus Estimate by 6.1%. Revenues of $39.63 billion outpaced the consensus mark by 1.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Elevance Health has an estimated long-term growth rate of 12%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average being 4.1%.

Medpace Holdings, sporting a Zacks Rank #1, reported third-quarter 2022 EPS of $2.05, which beat the Zacks Consensus Estimate by 39.5%. Revenues of $383.7 million outpaced the consensus mark by 8.1%.

Medpace Holdings has an estimated growth rate of 29.7% for full-year 2022. MEDP’s earnings surpassed estimates in all the trailing four quarters, the average being 22%.

Centene, carrying a Zacks Rank #2, reported third-quarter 2022 adjusted EPS of $1.30, which beat the Zacks Consensus Estimate by 6.6%. Revenues of $35.87 billion outpaced the consensus mark by 1.1%.

Centene has an estimated long-term growth rate of 14.2%. CNC’s earnings surpassed estimates in all the trailing four quarters, the average being 5.2%.


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