Edwards Lifesciences’ earnings performance
Yesterday, Edwards Lifesciences (EW) reported its second-quarter earnings results after the close of the regular trading session. The company’s share price closed 0.75% up at $195.46 yesterday. However, the stock jumped by 10.41% to $215.81 in the after-market trading session.
Edwards Lifesciences is by 27.61% in 2019 YTD. Since July 1, the stock has been up by 5.50%. The stock has increased by 8.00%, since it reported first-quarter earnings results on April 23. In the second quarter, Edwards Lifesciences reported revenues of $1.09 billion, a YoY rise of 11.81%, which surpassed the consensus revenue estimate by $41.96 million. The company’s underlying sales grew YoY by 13.6%, which came from balanced growth across all of the company’s product lines. However, FX had a negative revenue impact of $20 million. Non-GAAP revenues rose 15% to $1.1 billion.
In the second quarter, the company reported non-GAAP EPS of $1.38, a YoY rise of 11.29%. This was ahead of the consensus estimate by $0.05. According to the second-quarter earnings call, the robust sales performance drove EPS. However, the sales impact was partly offset by increased R&D expenses associated with transcatheter structural heart programs.
In the second quarter, Edwards Lifesciences reported GAAP EPS of $1.14, a YoY decline of 13.16%, which was due to $46 million charge associated with the decision to discontinue the Centera platform. FX had lower than a $0.01 impact on the company’s EPS.
Margins and expenses in the second quarter
In the second quarter, Edwards Lifesciences reported adjusted gross margin of 76.4%, a YoY improvement of 200 basis points. This was driven by changes in product mix. FX also had a favorable impact of 260 basis points on a YoY basis. However, increasing investment targeted at expanding the global supply chain negatively affected gross margins.
According to the second-quarter earnings call, the company reported SG&A (selling, general, and administrative) expenses of $308 million, a YoY rise of 12%. The expenses rose due to increased spending for field personnel in the transcatheter structural heart segment. The company expanded its Transcatheter Mitral and Tricuspid Therapies sales team in Europe. FX, however, had an unfavorable impact on the company’s SG&A expenses.
According to the second-quarter earnings call, Edwards Lifesciences reported R&D expenses of $192 million, a YoY rise of 25%. The company increased investments in its transcatheter structural heart programs.
In the second quarter, Edwards Lifesciences’ reported tax rate was 10.7%. This included an $0.08 benefit due to employee stock-based compensation. The company reported cash flow from operating activities of $341 million and free cash flow of $277 million. Capital expenditures totaled $64 million.
Capital allocation and shareholder value
At the end of the second quarter, Edwards Lifesciences reported cash and cash equivalents of $934 million. The company’s total debt was $594 million. In the second quarter, the company repurchased shares worth $250 million. The average shares outstanding at the end of the second quarter were $212 million.
Key revenue driver
The TAVR (transcatheter aortic valve replacement) segment was the key revenue driver for Edwards Lifesciences. The company reported TAVR sales of $678 million, a YoY rise of 16%. Underlying sales growth was 18% on a YoY basis. The company has forecasted global TAVR market to be worth $7.0 billion by the year 2024. To know more about the TAVR market trends, How Edwards Lifesciences Taps the Global TAVR Opportunity.
Guidance for fiscal 2019
In the second-quarter earnings call, Edwards Lifesciences guided for fiscal 2019 revenues of $4.0 billion to $4.3 billion, which is higher than the previous estimate of $3.9 billion to $4.3 billion. FX is expected to result in a negative revenue impact of $60 million. The company also increased fiscal 2019 non-GAAP EPS guidance from $5.10 to $5.35 to $5.20 to $5.40.
Edwards Lifesciences has guided for fiscal 2019 gross margins of 76%-78%. The company expects SG&A expenses to be 28%-29% of its total sales and R&D expenses to be 17%-18% of the total sales in fiscal 2019. The company has guided for a fiscal 2019 tax rate of 12%-14%.
Edwards Lifesciences is guiding for fiscal 2019 FCF of $800 million to $900 million. The company is also focused on increasing its global manufacturing capacity and strengthening the global supply chain. Edwards Lifesciences estimates its average outstanding shares to be $211 million to $213 million in fiscal 2019.
Guidance for the third quarter
In the second-quarter earnings call, Edwards Lifesciences has highlighted the third quarter as its seasonally weakest quarter. The company expects third-quarter revenues of $1.02 billion to $1.06 billion at current exchange rates. Non-GAAP EPS are expected to be $1.13 and $1.23.
Edwards Lifesciences’ valuation
Edwards Lifesciences is currently trading at a PE multiple of 52.16x. The multiple is higher than that of major competitors such as Medtronic and Boston Scientific. However, it is lower than that of Abbott Laboratories, and ICU Medical.
The 23 analysts tracking Edwards Lifesciences have an average target price of $198.93 on its stock. This indicates a potential upside of 1.78% in the next 12 months.