A month has gone by since the last earnings report for Edwards Lifesciences Corporation (EW - Free Report) . Shares have added about 1.5% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is EW 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’ first-quarter 2018 adjusted earnings per share (EPS) came in at $1.22 while reported EPS was 96 cents.
The adjusted EPS figure beat the Zacks Consensus Estimate of $1.10 by 10.9%. Moreover, adjusted earnings improved 29.8% year over year, primarily driven by strong sales growth at the transcatheter heart valves business.
First-quarter sales improved 1.3% to $894.8 million but fell short of the Zacks Consensus Estimate of $930.2 million by 3.8%. Underlying sales increased 9.3% (including the impact of Germany stocking sales as customers in the nation chose to purchase additional inventory of the SAPIEN 3 valve in anticipation of a potential supply interruption resulting from recent intellectual property litigation).
Revenues were primarily driven by considerable growth in transcatheter heart valve sales as well as strong performance by Critical Care product line.
In the first quarter, the company reported Transcatheter Heart Valve Therapy (THVT) sales of $551.6 million, reflecting 2.3% growth over the prior-year quarter. In the United States, THVT procedures grew in mid-teens year over year. Growth was driven by excellent clinical performance by SAPIEN 3 as well as continued strong therapy implementation across all regions.
Surgical Heart Valve Therapy sales in the quarter totaled $179.5 million, down 10% from the prior-year quarter. This includes a sales return reserve for conversion to a consignment inventory model. However, Edwards Lifesciences continued to witness solid uptake of the EDWARDS INTUITY Elite valve system along with strong demand for the latest INSPIRIS RESILIA aortic valve in the United States. Further, the company’s latest products drove underlying sales growth at a rate which surpassed the total procedure growth rate.
Critical Care sales were $163.7 million in the reported quarter, representing an increase of 13% from first-quarter 2017. The upside can be attributed to solid growth across all product categories, largely led by HemoSphere advanced monitoring platform along with solid growth in the United States and the Asia Pacific.
In the first quarter, gross margin contracted 170 basis points (bps) to 73.9% owing to adverse currency movements and continued operational investments. However, this was partially offset by more profitable product mix led by growing sales of transcatheter valves.
SG&A expenses rose 11.5% year over year to $256 million on account of sales and personnel-related expenses, as well as strengthening of euro in comparison with the dollar. R&D expenditures increased 11.3% year over year to $143.2 million owing to continued investments in the transcatheter aortic valve and mitral valve program along with expenditures on clinical trials. Accordingly, adjusted operating margin in the quarter contracted 570 bps to 29.3%.
Edwards Lifesciences exited the first quarter with cash and cash equivalents and short-term investments of $1.50 billion compared with $1.34 billion at the end of 2017. Long-term debt in the reported quarter totaled $456 million versus $438.4 million at 2017-end.
Cash flow from operating activities was $151.3 million in the first quarter. Excluding capital spending of $43.2 million, free cash flow was $108.1 million. During the quarter, average diluted shares outstanding totaled 215.1 million.
2018 Guidance Raised
Edwards Lifesciences raised its 2018 adjusted EPS expectations to $4.50-$4.70 from the previous $4.43–$4.63. The Zacks Consensus Estimate for full-year adjusted EPS stands at $4.52, near the low end of the company’s guided range.
However, the company continues to maintain sales expectations at the high end of the previously projected range of $3.5-$3.9 billion. The Zacks Consensus Estimate for full-year revenues is $3.85 billion, within the guided range.
For the second quarter of 2018, the company projects sales between $950 million and $1 billion. The Zacks Consensus Estimate for revenues is $964.6 million, within the company’s estimated range. The company forecasts adjusted EPS between $1.05 and $1.15. Meanwhile, the Zacks Consensus Estimate for adjusted EPS is $1.16, which is above the company‘s forecasted range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to seven lower.
Edwards Lifesciences Corporation Price and Consensus
At this time, EW has a nice Growth Score of B, however its Momentum is doing a bit better with an A. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than growth investors.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, EW has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.