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Alcon (ALC) Q3 Earnings Miss Estimates, Margins Increase

Alcon, Inc. ALC delivered core earnings per share (EPS) of 66 cents in the third quarter of 2023, up 32% from the year-ago quarter’s figure (up 41% at the constant exchange rate or CER). The figure missed the Zacks Consensus Estimate by 1.5%. Alcon’s “core” results are based on non-IFRS (International Financial Reporting Standards) measures.

In the third quarter, the company’s diluted EPS were 41 cents, up 78% from the prior-year quarter’s figures.

Revenues in Detail

Alcon’s net sales to third parties in the third quarter were $2.30 billion, missing the Zacks Consensus Estimate by 1.6%. The top line increased 8.4% from the year-ago quarter’s levels (up 9% at CER).

Quarter in Detail

Alcon reports operations through two reportable segments — Surgical (comprising Implantables, Consumables and Equipment/Other) and Vision Care (comprising Contact Lenses and Ocular Health).

Surgical

In the third quarter, Surgical sales amounted to $1.28 billion, up 5% year over year and 6% at CER. Our estimate projected a year-over-year improvement of 12.8%.

Net sales in Implantables increased 2%, led by demand for advanced technology intraocular lenses in the international market. Our estimate projected a year-over-year increase of 17.2% for the third quarter.

Consumables increased 7.7%, while Equipment/Other was up 4% from the prior-year quarter’s levels. Our estimate projected an improvement of 10.8% and 9.5% for consumables and equipment/other, respectively.

Vision Care

The segment reported total sales of $1.00 billion, up 13% year over year on a reported and CER basis. Our model projected a year-over-year rise of 8.6%.

Net sales of Contact Lenses increased 10% year over year, driven by product innovation, including toric modalities of Precision1, Total30 and Dailies Total1, outpacing declines in legacy lenses. Our model projected an improvement of 9.1% in this segment.

Ocular Health sales increased 19% year over year, primarily driven by the portfolio of eye drops, including acquired ophthalmic pharmaceutical products and price increases.

Margins

The cost of net sales in the third quarter was $1.02 billion, up 6.7% year over year. The core gross profit rose 10.6% to $1.31 billion in the reported quarter.

The core gross margin expanded 88 basis points (bps) to 56.1% in the third quarter of 2023.

The core operating margin expanded 103 bps in the third quarter to 13.2%. The upside was primarily driven by a higher gross margin and improved underlying operating leverage from higher sales.

Financial Position

Alcon exited the third quarter of 2023 with cash and cash equivalents of $1.05 billion compared with $661 million at the end of the second quarter.

The cumulative net cash flow from operating activities at the end of the third quarter was $937 million compared with $872 million a year ago. Free cash flow totaled $592 million at the end of the third quarter of 2023, compared with a cash inflow of $475 million a year ago.

2023 Outlook

Alcon provided an updated outlook for the full year.

The company anticipates 2023 net sales in the range of $9.3-$9.4 billion (previously $9.3-$9.5 billion). The revised range suggests growth of 10-11% at CER from 2022, up from the earlier projected growth of 9-11%. The Zacks Consensus Estimate for ALC’s revenues is pegged at $9.48 billion.

Alcon Price, Consensus and EPS Surprise

 

Alcon Price, Consensus and EPS Surprise
Alcon Price, Consensus and EPS Surprise

Alcon price-consensus-eps-surprise-chart | Alcon Quote

 

Core EPS for the full year is expected in the range of $2.70-$2.75 (previously $2.70-$2.75). This indicates growth of 31-33% at CER from 2022 levels, up from the earlier projected growth of 28-32%. The Zacks Consensus Estimate for Alcon’s 2023 earnings is currently pegged at $2.75 per share.

Our Take

Alcon delivered lower-than-expected earnings and revenues in the third quarter of 2023. However, the registered year-over-year increase in both revenues and EPS front. A competitive product portfolio, favorable market conditions, strong commercial execution and selective price increases drove the robust performance. During the reported quarter, the company witnessed strong demand for advanced technology intraocular lenses in international markets. The double-digit Vision Care growth reflects strength in contact lenses and eye drops, including acquired products and pricing. The expansion of both margins bodes well.

Within Implantables, international growth was partially offset by unfavorable currency impacts. Escalating costs are discouraging, too.

Zacks Rank and Other Key Picks

Alcon currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories ABT, DexCom, Inc. DXCM and Integer Holdings Corporation ITGR.

Abbott, carrying a Zacks Rank of 2, reported adjusted EPS of $1.14 in third-quarter 2023, beating the Zacks Consensus Estimate by 3.6%. Revenues of $10.14 billion outpaced the consensus mark by 3.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 6.8%.

DexCom reported a third-quarter 2023 adjusted EPS of 50 cents, beating the Zacks Consensus Estimate by 47.1%. Revenues of $975 million surpassed the Zacks Consensus Estimate by 4%. It currently carries a Zacks Rank #2.

DexCom has a long-term estimated growth rate of 33.6%. DXCM’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.4%.

Integer Holdings reported adjusted EPS of $1.27 in third-quarter 2023, beating the Zacks Consensus Estimate by 20.9%. Revenues of $404.7 million surpassed the Zacks Consensus Estimate by 8.7%. It currently carries a Zacks Rank #2.

Integer Holdings has a long-term estimated growth rate of 15.8%. ITGR’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 11.9%.

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Abbott Laboratories (ABT) : Free Stock Analysis Report

Alcon (ALC) : Free Stock Analysis Report

DexCom, Inc. (DXCM) : Free Stock Analysis Report

Integer Holdings Corporation (ITGR) : Free Stock Analysis Report

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