Alcon Inc. (ACL) reported second-quarter earnings of $2.22 per share, easily beating the Zacks Consensus Estimate of $2.03 and 14.4% ahead of the year-ago figure. Earnings were boosted by strong revenues.
Revenues
Quarterly revenues increased 12.5% (including the impact of foreign exchange) to $1.89 billion, comfortably ahead of the Zacks Consensus Estimate of $1.82 billion. While strong contributions from advanced technology AcryS of intraocular lenses, continued gains in the glaucoma market and increased sales due to a severe allergy season helped boost US revenues by 12.7%, international revenues also grew at par at 12.3%. Emerging markets recorded a 28.8% increase with BRIC (Brazil, Russia, India and China) reporting a growth of 40.0%.
We were pleased to see that all the revenue segments at Alcon put in a strong performance in the reported quarter. While pharmaceutical sales increased 17.4% to $837 million, surgical sales increased 8.7% to $823 million. Consumer sales grew 9.2% to $226 million.
Pharmaceutical revenue benefited from a severe allergy season in the US complemented by a strong performance of the glaucoma franchise, sales of which increased 17.5% to $322 million. Continued market penetration of Azarga, outside the US, and robust sales of the Travatan family of products boosted the performance of the glaucoma franchise.
Strong performance of intraocular lenses (IOLs), especially Advanced Technology IOLs, helped drive surgical revenue during the quarter. Global sales of intraocular lenses rose 28.3% mainly due to a broader use of AcrySof IQ ReSTOR +3.0 lens and AcrySof IQ Toric lens.
Margins
The company’s second-quarter gross margin increased to 77.4% from the year-ago margin of 75.3%, mainly due to foreign exchange rates fluctuation.
Quarterly operating margin was 40%, 230 basis points above the year-ago figure. The increase was primarily due to strong sales growth, positive price contribution as well as the favorable, though temporary, impact of foreign exchange on gross profit margin.
Improved outlook for 2010
Alcon raised its guidance for fiscal 2010 and now expects earnings per share in the range of $7.45 to $7.62 (from $7.30 to $7.55) on organic sales growth in the high single digits (up from mid-to-high single-digit range). The US health care reform is expected to negatively impact fiscal 2010 revenues by $20 million and earnings by 6 cents a share.
The Zacks Consensus Estimate for fiscal 2010 currently stands at $7.57 per share.
Our View
We are currently Neutral on Alcon, which is supported by a Zacks #3 Rank (Hold). We believe Alcon is well positioned to deliver sustainable sales and earnings growth, thanks to its global business presence, a commitment to develop innovative products and an aging global population.
While Alcon could face some headwinds in the form of patent expirations, patent challenges, generic threats and softer pricing on certain products as a result of Medicare rebates, continued international penetration, new product launches and market share gains will fuel for future revenue growth at Alcon.
The proposed acquisition of Alcon by Novartis AG (NVS) is scheduled to close towards the end of the third quarter or early fourth quarter.
Revenues
Quarterly revenues increased 12.5% (including the impact of foreign exchange) to $1.89 billion, comfortably ahead of the Zacks Consensus Estimate of $1.82 billion. While strong contributions from advanced technology AcryS of intraocular lenses, continued gains in the glaucoma market and increased sales due to a severe allergy season helped boost US revenues by 12.7%, international revenues also grew at par at 12.3%. Emerging markets recorded a 28.8% increase with BRIC (Brazil, Russia, India and China) reporting a growth of 40.0%.
We were pleased to see that all the revenue segments at Alcon put in a strong performance in the reported quarter. While pharmaceutical sales increased 17.4% to $837 million, surgical sales increased 8.7% to $823 million. Consumer sales grew 9.2% to $226 million.
Pharmaceutical revenue benefited from a severe allergy season in the US complemented by a strong performance of the glaucoma franchise, sales of which increased 17.5% to $322 million. Continued market penetration of Azarga, outside the US, and robust sales of the Travatan family of products boosted the performance of the glaucoma franchise.
Strong performance of intraocular lenses (IOLs), especially Advanced Technology IOLs, helped drive surgical revenue during the quarter. Global sales of intraocular lenses rose 28.3% mainly due to a broader use of AcrySof IQ ReSTOR +3.0 lens and AcrySof IQ Toric lens.
Margins
The company’s second-quarter gross margin increased to 77.4% from the year-ago margin of 75.3%, mainly due to foreign exchange rates fluctuation.
Quarterly operating margin was 40%, 230 basis points above the year-ago figure. The increase was primarily due to strong sales growth, positive price contribution as well as the favorable, though temporary, impact of foreign exchange on gross profit margin.
Improved outlook for 2010
Alcon raised its guidance for fiscal 2010 and now expects earnings per share in the range of $7.45 to $7.62 (from $7.30 to $7.55) on organic sales growth in the high single digits (up from mid-to-high single-digit range). The US health care reform is expected to negatively impact fiscal 2010 revenues by $20 million and earnings by 6 cents a share.
The Zacks Consensus Estimate for fiscal 2010 currently stands at $7.57 per share.
Our View
We are currently Neutral on Alcon, which is supported by a Zacks #3 Rank (Hold). We believe Alcon is well positioned to deliver sustainable sales and earnings growth, thanks to its global business presence, a commitment to develop innovative products and an aging global population.
While Alcon could face some headwinds in the form of patent expirations, patent challenges, generic threats and softer pricing on certain products as a result of Medicare rebates, continued international penetration, new product launches and market share gains will fuel for future revenue growth at Alcon.
The proposed acquisition of Alcon by Novartis AG (NVS) is scheduled to close towards the end of the third quarter or early fourth quarter.
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