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Intuitive Surgical (ISRG) Falls Following Q4 Earnings Miss
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Intuitive Surgical (ISRG - Free Report) reported its fourth-quarter 2022 adjusted earnings per share (EPS) of $1.23, which missed the Zacks Consensus Estimate of $1.26 per share by 2.4%. The bottom line declined 4.7% year over year. However, the adjusted EPS beat our estimate for EPS by 3.4%.
GAAP EPS in the quarter was 91 cents compared with the year-ago quarter’s figure of $1.04 per share.
Revenue Details
This Zacks Rank #3 (Hold) company reported revenues of $1.66 billion, which climbed 7.1% from the prior-year quarter. Growth in da Vinci procedure volume contributed to the improvement, which was partially offset by lower system placements and foreign currency impacts. The top line matched the Zacks Consensus Estimate. It missed our estimate for total revenues by 0.32%.
Segment Details
Instruments & Accessories
Revenues at the segment totaled $940.7 million, indicating a year-over-year improvement of 11.6%. This can be attributed to da Vinci procedure’s 18% volume growth. This was partially offset by foreign currency impacts. The procedure volume growth in the United States reflects a favorable comparison with the year-ago quarter, given the impact of the Delta variant last year. Procedure volume in China had shown a recovery during the third quarter, which likely had raised investors’ sentiments of continued recovery in the country. However, procedure volume was adversely impacted in China during the fourth quarter, following a resurgence in COVID-19. The company believes that the adverse impact of COVID-19 may continue in China. The negative impact on procedure volume in China is also likely to have contributed to the fall in the price of ISRG stock during after-hours trading on Jan 24.
Intuitive Surgical, Inc. Price, Consensus and EPS Surprise
In the reported quarter, System revenues declined 4% year over year to $451 million. The company shipped 369 da Vinci Surgical Systems in the quarter, compared with 385 in the prior-year quarter. The company placed 181 systems in the United States, compared with 235 in the year-ago quarter. Outside the United States, Intuitive Surgical placed 188 systems in the fourth quarter, compared with 150 in the prior-year quarter. Of these, 70 were in Europe, 37 in Japan and 14 in China.
Services
Services revenues were $263.39 million, up 10.6% from the year-ago quarter.
Margins
Adjusted gross profit in the reported quarter was $1.13 billion, up 3.8% year over year. As a percentage of revenues, the gross margin in the quarter was 68.2%, down 190 basis points (bps) from the previous quarter.
Selling, general and administrative expenses amounted to $494.3 million, up 15.8% from the prior-year quarter. The SG&A expense was 6.7% higher than our estimate of $463.1 million. Research and development expenses totaled $244.1 million, up 33.1% on a year-over-year basis. The R&D expense beat our estimate of $204.3 million by 19.5%.
Adjusted operating income totaled $529.8 million, down 9.1% year over year. The figure was higher than our estimate for adjusted operating income of $567.9 million. As a percentage of revenues, the operating margin in the quarter was 32%, down 560 bps quarter over quarter.
Financial Position
The company exited the fourth quarter with cash, cash equivalents and investments of $6.74 billion, compared with $7.39 billion in the previous quarter.
Total assets were $12.97 billion, compared with $13.26 billion sequentially.
Wrapping Up
Intuitive Surgical ended the fourth quarter on a mixed note, wherein revenues were in line with the consensus mark but earnings missed the same. The company displayed strong segmental performance in the quarter under review. It witnessed growth in da Vinci procedure volume in the fourth quarter. However, resurgence of COVID-19 raises uncertainty.
The contraction in both gross and operating margins reflects rising costs and expenses amid inflationary pressure. However, the margins are likely to improve moving forward in 2023 as operating expenses are anticipated to decline.
Lower-than-expected earnings coupled with adverse impact of COVID-19 resurgence on procedure volume in China seem to have dismayed investors. Shares of Intuitive Surgical declined 9.1% during after-hours trading on Jan 24 following dismal fourth-quarter earnings. The company’s shares have risen 17.7% in the past six months, compared with an increase of 2.8% for the industry and 0.6% for the S&P 500 Index.
Image Source: Zacks Investment Research
The intense competition in the global MedTech space remains a concern.
Stocks to Consider
Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. (AMN - Free Report) , ShockWave Medical, Inc. (SWAV - Free Report) and McKesson Corporation (MCK - Free Report) .
ShockWave Medical, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated growth rate of 27.7% for 2023. SWAV’s earnings surpassed estimates in all the trailing four quarters, the average beat being 146.10%.
ShockWave Medical has lost 12% against the industry’s 2.8% increase in the past six months.
AMN Healthcare, sporting a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.96%.
AMN Healthcare has lost 14.4% compared with the industry’s 5.6% decline in the past six months.
McKesson, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 10.1%. MCK’s earnings surpassed estimates in two of the trailing four quarters and missed the same twice, the average beat being 4.79%.
McKesson has gained 12% compared with the industry’s 4.7% increase over the past six months.
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Intuitive Surgical (ISRG) Falls Following Q4 Earnings Miss
Intuitive Surgical (ISRG - Free Report) reported its fourth-quarter 2022 adjusted earnings per share (EPS) of $1.23, which missed the Zacks Consensus Estimate of $1.26 per share by 2.4%. The bottom line declined 4.7% year over year. However, the adjusted EPS beat our estimate for EPS by 3.4%.
GAAP EPS in the quarter was 91 cents compared with the year-ago quarter’s figure of $1.04 per share.
Revenue Details
This Zacks Rank #3 (Hold) company reported revenues of $1.66 billion, which climbed 7.1% from the prior-year quarter. Growth in da Vinci procedure volume contributed to the improvement, which was partially offset by lower system placements and foreign currency impacts. The top line matched the Zacks Consensus Estimate. It missed our estimate for total revenues by 0.32%.
Segment Details
Instruments & Accessories
Revenues at the segment totaled $940.7 million, indicating a year-over-year improvement of 11.6%. This can be attributed to da Vinci procedure’s 18% volume growth. This was partially offset by foreign currency impacts. The procedure volume growth in the United States reflects a favorable comparison with the year-ago quarter, given the impact of the Delta variant last year. Procedure volume in China had shown a recovery during the third quarter, which likely had raised investors’ sentiments of continued recovery in the country. However, procedure volume was adversely impacted in China during the fourth quarter, following a resurgence in COVID-19. The company believes that the adverse impact of COVID-19 may continue in China. The negative impact on procedure volume in China is also likely to have contributed to the fall in the price of ISRG stock during after-hours trading on Jan 24.
Intuitive Surgical, Inc. Price, Consensus and EPS Surprise
Intuitive Surgical, Inc. price-consensus-eps-surprise-chart | Intuitive Surgical, Inc. Quote
Systems
In the reported quarter, System revenues declined 4% year over year to $451 million. The company shipped 369 da Vinci Surgical Systems in the quarter, compared with 385 in the prior-year quarter. The company placed 181 systems in the United States, compared with 235 in the year-ago quarter. Outside the United States, Intuitive Surgical placed 188 systems in the fourth quarter, compared with 150 in the prior-year quarter. Of these, 70 were in Europe, 37 in Japan and 14 in China.
Services
Services revenues were $263.39 million, up 10.6% from the year-ago quarter.
Margins
Adjusted gross profit in the reported quarter was $1.13 billion, up 3.8% year over year. As a percentage of revenues, the gross margin in the quarter was 68.2%, down 190 basis points (bps) from the previous quarter.
Selling, general and administrative expenses amounted to $494.3 million, up 15.8% from the prior-year quarter. The SG&A expense was 6.7% higher than our estimate of $463.1 million. Research and development expenses totaled $244.1 million, up 33.1% on a year-over-year basis. The R&D expense beat our estimate of $204.3 million by 19.5%.
Adjusted operating income totaled $529.8 million, down 9.1% year over year. The figure was higher than our estimate for adjusted operating income of $567.9 million. As a percentage of revenues, the operating margin in the quarter was 32%, down 560 bps quarter over quarter.
Financial Position
The company exited the fourth quarter with cash, cash equivalents and investments of $6.74 billion, compared with $7.39 billion in the previous quarter.
Total assets were $12.97 billion, compared with $13.26 billion sequentially.
Wrapping Up
Intuitive Surgical ended the fourth quarter on a mixed note, wherein revenues were in line with the consensus mark but earnings missed the same. The company displayed strong segmental performance in the quarter under review. It witnessed growth in da Vinci procedure volume in the fourth quarter. However, resurgence of COVID-19 raises uncertainty.
The contraction in both gross and operating margins reflects rising costs and expenses amid inflationary pressure. However, the margins are likely to improve moving forward in 2023 as operating expenses are anticipated to decline.
Lower-than-expected earnings coupled with adverse impact of COVID-19 resurgence on procedure volume in China seem to have dismayed investors. Shares of Intuitive Surgical declined 9.1% during after-hours trading on Jan 24 following dismal fourth-quarter earnings. The company’s shares have risen 17.7% in the past six months, compared with an increase of 2.8% for the industry and 0.6% for the S&P 500 Index.
Image Source: Zacks Investment Research
The intense competition in the global MedTech space remains a concern.
Stocks to Consider
Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. (AMN - Free Report) , ShockWave Medical, Inc. (SWAV - Free Report) and McKesson Corporation (MCK - Free Report) .
ShockWave Medical, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated growth rate of 27.7% for 2023. SWAV’s earnings surpassed estimates in all the trailing four quarters, the average beat being 146.10%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
ShockWave Medical has lost 12% against the industry’s 2.8% increase in the past six months.
AMN Healthcare, sporting a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.96%.
AMN Healthcare has lost 14.4% compared with the industry’s 5.6% decline in the past six months.
McKesson, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 10.1%. MCK’s earnings surpassed estimates in two of the trailing four quarters and missed the same twice, the average beat being 4.79%.
McKesson has gained 12% compared with the industry’s 4.7% increase over the past six months.