Alcon AG released second-quarter results Aug. 18, reporting worldwide sales of $1.2 billion. That figure represented a decrease of 36%, or 34% on a constant currency basis, vs. the same period last year as COVID-19 hit all business categories.
As Wells Fargo’s Larry Biegelsen noted, the Geneva-based company, which held its call Aug. 19, saw net loss per share coming in worse than expected due to higher selling, general and administrative expenses. With that said, he also noted that the sales figure was above his organization’s estimates of $1.1 billion and highlighted what he views as encouraging news moving forward through the year.
“The company noted that April sales were ~50% of its expectations with slight improvement in May and rebounding starting in June. By our math, ALC’s sales were likely down ~50% yr/yr [year over year] in April and improved to less than 10% yr/yr decline in June,” he wrote.
In a separate note following the call, he said that management expects fourth-quarter results to be similar to those of a year ago. "ALC reported 4Q19 product sales of $1.88 [billion], core operating margin of 16.8% and EPS [earnings per share] of $0.45. This seems directionally consistent with current consensus Q4 forecast of $1.91 [billion] sales and $0.46 EPS.”
Richard Newitter with SVB Leerink noted that shares were trending down after-market and could see pressure after the company’s earnings call. The company (NYSE:ALC) ultimately closed at 59.84, down $1.37, or 2.24%. Last year, the company made its U.S. trading debut after being spun off by Novartis AG.
In addition, per Newitter’s expectations for the company, implantables beat estimates, while contact lenses underperformed. Surgical net sales came in at $602 million, a drop of 43%, or 42% on a constant currency basis vs. the second quarter of 2019. Vision care had net sales of $596 million, a decrease of 27%, or 25% on a constant currency basis, vs. the same period last year.
Surgical, vision care recovery
During the call on results, David Endicott, CEO of Alcon, highlighted the performance of surgical and vision care. He noted that with the former, hospitals and clinics are reopening gradually and looking to rebuild patient flow.
“In discussions with our customers, we're hearing that countries like China, where a large majority of surgeries are performed in hospitals, procedure volumes are running at about 80% to 90%. However, in countries like the U.S., where the large majority of surgeries are performed in ambulatory surgery centers or private clinics, our customers are seeing procedures volumes running above 90%,” he noted.
He credited that result to doctors increasing their surgery days or extending their hours to boost capacity. There could be some normalization moving forward, but he could not rule out variabilities “as doctors exhaust a backlog of pre-COVID patients and work to refill their pipeline.”
With vision care, practices have reopened, but optometrists must take new safety procedures into consideration. "Recent survey data indicates that optometry practices in the [U.S.] are down approximately 20% in visits despite 95% plus being reopened. Assuming we do not experience further disruption from COVID-19, we believe vision care will return to more normalized volumes by early next year,” he said.
During the Q&A session of the call, Bob Hopkins with Bank of America, asked whether any of the COVID-19-related expenses or drains on free cash flow that could linger into next year.
"I think most of the COVID-related expenses to think about going forward is really around that manufacturing absorption rate,” explained Tim Stonesifer, senior vice president and CFO. “So, we're going to continue to see some of that pressure to a lesser extent in Q3 and then more in Q4 and then it ... works its way out.” Still, the company will monitor the situation on a quarter-by-quarter basis.
In the wake of the call, Ryan Zimmerman, of BTIG, maintained his organization’s neutral rating for Alcon. "While we like the fundamentals of ALC's story (expansive TAM [total addressable market], strong demographic/epidemiological trends, full product pipeline, and opportunities to improve margins), we believe many of these drivers take hold in FY20 and beyond, likely limiting opportunity in shares over the next few quarters,” he wrote. “While we're inclined to want to buy and hold ALC, we would recommend waiting for pullbacks before becoming constructive.”
Zimmerman in July wrote that he was cautious about the company, which he thought could see pressuring in cataracts until the worst of the pandemic was over. Management acknowledged during the call that global cataract procedures shrank by half during the quarter. "Second-quarter market data shows us gaining share in the U.S. PC-IOL [presbyopia-correcting intraocular lens] category, where Alcon now has over 70% of the market,” Endicott said. “We're very pleased with the continued strong demand for Panoptix and our market-leading position in the PC-IOL category.”
The Acrysof IQ Panoptix IOL is an intraocular lens designed to provide patients with clear vision for near, intermediate, and far distances without glasses after cataract surgery. Panoptix was introduced in the U.S. and Japan last year, and the company is looking to expand. “[I]n July, we began launching Panoptix in China with key opinion leaders, and initial surgeon feedback in that country has been very strong.”