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Intuitive Surgical (ISRG - Analyst Report) has released disappointing preliminary results for the second quarter of 2013. The results were affected by weak sales of the company’s da Vinci Surgical Systems. Sales for this flagship product are expected to decline by 6% during the quarter.

Though revenues are expected to grow 7% to $575 million, it lags the Zacks Consensus Estimate of $631 million by roughly 9%. Preliminary second-quarter net income is expected to be $160 million, up 3% year over year. The current Zacks Consensus Estimate for earnings in the second quarter is pegged at $4.32.

Intuitive Surgical, based in Sunnyvale, CA, managed to sell 143 da Vinci Surgical Systems in the second quarter compared with 150 in the year-ago quarter. Sales increased everywhere, including Europe, Japan and the rest of the world, except the U.S.

Sales of the da Vinci product decreased in the U.S. (from 124 to 90 year over year) due to the ongoing economic pressure to reduce hospital costs and the sluggish growth rate in benign gynecologic surgeries. The decision of healthcare insurers to opt for conservative treatments in outpatient settings led to lower hospital admissions.

This, in turn, resulted in moderate benign gynecologic surgeries. However, da Vinci procedures grew 18% in the quarter on the back of strong general surgery procedures.

Further, instruments and accessories revenues are expected to be $265 million, up 18%. Sales were boosted by healthy procedure growth, partially offset by reduction in stocking orders related to a drop in system sales. Service revenues in the second quarter are expected to grow roughly 14% to $95 million.

Following the announcement of the preliminary results, shares of ISRG plunged 11% (or $56.58) after hours to $443.50 on Monday, Jul 8. ISRG will release its full second-quarter results on Jul 18.

Our Take

Lower sales of the flagship da Vinci product is a matter of concern. This is reflected in the company’s Zacks Rank #4 (Sell). We believe that Intuitive Surgical’s products will experience increased pricing pressure due to the stiff capital spending environment in the U.S.

While we choose to avoid ISRG at this point of time, other medical instruments stocks such as Mako Surgical , Natus Medical (BABY - Snapshot Report) and Globus Medical (GMED - Snapshot Report) are worth considering. All these stocks carry a Zacks Rank #2 (Buy).

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