A month has gone by since the last earnings report for Edwards Lifesciences (EW Quick QuoteEW - Free Report) . Shares have added about 6.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Edwards Lifesciences due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Edwards Lifesciences Q3 Earnings Top, Margins Down

Edwards Lifesciences Corporation reported adjusted earnings per share of 59 cents for third-quarter 2023, in line with the Zacks Consensus Estimate. The figure dropped 3.3% year over year.

The quarter’s one-time adjustments primarily include tax gain related to the suspension of certain United States tax regulations surrounding foreign tax credits.

GAAP earnings per share was 63 cents in the quarter, up 18.2% year over year.

Sales Details

Third-quarter net sales were $1.48 billion, up 12% year over year on a reported basis (up 11% at constant exchange rate or CER). The metric missed the Zacks Consensus Estimate by 0.07%.

Segmental Details

In the third quarter, global sales in the Transcatheter Aortic Valve Replacement (TAVR) product group amounted to $961 million, up 11% year over year or 10% at CER. The company's U.S. and Outside U.S. sales growth rates were comparable. Globally, on a constant currency basis, the company's average selling prices were stable. In the United States, third-quarter TAVR sales were driven by the continued successful launch of SAPIEN 3 Ultra RESILIA. In Europe, sales were driven by the broad-based adoption of the company’s SAPIEN platform. Sales in Japan grew year over year, reflecting a gradual recovery in market growth and strong adoption of SAPIEN 3 Ultra RESILIA.This figure compares with our third quarter’s TAVR model’s projection of $960.2 million.

Transcatheter Mitral and Tricuspid Therapies (TMTT) sales totaled $52.6 million, up 65% from the prior-year quarter’s figure on a reported basis. This performance was driven by the accelerating adoption of the company’s differentiated PASCAL precision platform, the activation of more centers across the United States and Europe, as well as key TEER procedural growth. This figure compares favorably with our model’s projection of $46.3 million.

Surgical Structural Heart sales in the third quarter totaled $247 million, up 12% from the year-ago quarter’s levels on a reported basis and 11% at CER. Growth was driven by the adoption of Edwards' premium products, RESILIA products and overall procedure growth. This figure compares with our model’s projection of $247.9 million.

Critical Care sales totaled $221 million in the third quarter, up 7% from the year-ago quarter’s levels on a reported basis and up 6% at CER. Sales growth was led by the Smart Recovery technology portfolio and strong adoption of the Acumen IQ sensor equipped with the Hypotension Prediction Index algorithm. This figure compares with our model’s projection of $224.5 million.

Margins

In the third quarter, gross profit was $1.13 billion, up 6.1%. However, the gross margin contracted 442 basis points (bps) to 76.3%.

The company-provided adjusted gross margin was 76.4%, marking a 460 basis-point (bps) contraction year over year. This year-over-year reduction was due to the unfavorable impact of foreign exchange.

Selling, general and administrative expenses rose 16.5% year over year to $439.6 million. Research and development expenditures were $270.3 million, up 15.7% year over year. During the reported quarter, operating income declined 7.4% year over year to $420.6 million. The operating margin contracted 604 bps to 28.4%.

Cash Position

Edwards Lifesciences exited third-quarter 2023 with cash and cash equivalents and short-term investments of $1.41 billion compared with $1.51 billion recorded at the end of second-quarter 2023. Long-term debt was $597 million at the end of third-quarter 2023, unchanged sequentially.

Guidance

The company reiterated its guidance for full-year 2023.

The company expects full-year 2023 adjusted earnings per share to grow in the range of $2.50-$2.60 (unchanged). The Zacks Consensus Estimate for the metric is pegged at $2.51.

The company continues to expect full-year total company and TAVR sales growth in the range of 10-13% on a constant currency basis. The Zacks Consensus Estimate for the same is pegged at $5.97 billion.

For the fourth quarter of 2023, Edwards Lifesciences projects total sales in the range of $1.45-$1.53 billion. The Zacks Consensus Estimate for fourth-quarter revenues is pegged at 1.50 billion. Adjusted earnings per share is expected in the band of 60-66 cents. The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 65 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -6.46% due to these changes.

VGM Scores

Currently, Edwards Lifesciences has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Edwards Lifesciences has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.