Edwards’ Warning on Earnings Sends Its Stock Tumbling
Edwards Lifesciences Corp.’s stock was hammered Tuesday after the company lowered its profit estimates for the fourth quarter and 2001, citing a weak euro and sluggish sales in some product lines.
Shares of the Irvine company, which makes products to treat cardiovascular disease, plummeted more than 41%, the fifth-largest percentage loss in U.S. markets for the day. The stock closed Tuesday at $13.44, down $9.50 a share, on the New York Stock Exchange.
“I think it’s an overreaction,” said Edwards Chief Executive Mike Mussallem. “It’s not uncommon for global companies to revise earnings and sales.”
Ironically, Edwards also announced third-quarter earnings that were in line with Wall Street’s expectations of 23 cents a share.
That was overshadowed, however, by the company’s announcement that it was reducing its profit estimates to a 20% increase for both this year and in 2001, down from previous estimates of a 30% growth rate for each year. The company also said fourth-quarter sales would be only slightly higher than third-quarter sales.
Mussallem singled out the soft euro as the biggest culprit. European sales account for about 22% of the company’s revenue. Because the company sells goods in Europe in euros and later converts them into dollars, a weak euro takes a bite out of European profits and sales, he said.
He also said sales of some products have been hurt by the growth of coronary bypass operations with the heart still beating. Revenues of Edwards’ line of products that support patients when the heart is stopped during open-heart operations dropped 9.9% to $50.7 million in the third quarter.
The company said it earned $13.8 million, or 23 cents a share, excluding extraordinary charges, up from $6 million, or 10 cents a share, a year earlier. Revenue fell 4.6% to $185.8 million.
Some analysts expressed concern about the company’s prospects.
AG Edwards analyst Greg Simpson, who has a “neutral” rating on the stock, said he’s “very nervous” about the company’s “anemic [sales growth] outlook.”
With the exception of replacement heart valves, Edwards has few products on the market or in the pipeline that could drive growth, he said.
Moreover, he said, Edwards pulled the plug earlier this year on domestic clinical trials and on European sales of one of its most promising products: fabric-covered wire grafts for protecting dangerously weakened aortas. The company took the action after discovering that a wire within the Lifepath AAA Endovascular Graft System had fractured within two patients.
Mussallem said Edwards had launched several promising products this year, including next-generation catheters, a clot-removal system for patients with kidney disorders and the country’s only mitral heart valve made from cow tissue.
The company also hopes to snap up new technologies through partnerships and acquisitions.
Another analyst noted that the company’s sales may also be affected by a shift from heart surgeries to less invasive procedures, including the increased use of angioplasty balloons and stents.
“Edwards makes products for late-stage cardiovascular surgery markets, and that market appears to be shrinking,” said analyst Girish Tyagi of ABN AMRO. “That spooks investors.”
Analyst David Lothson of PaineWebber said he expected Edwards’ stock to bounce back, but that the company should acquire new businesses or companies to fire growth. Edwards also needs to do a better job of hedging against currency fluctuations, he said.
After the earnings announcement, J.P. Morgan Securities analyst Michael N. Weinstein downgraded Edwards to “market perform” from “buy.”
Mussallem said, however, that he remains bullish about Edwards’ prospects, noting that he’s increasing spending for research and development by 10% this year, up from single digits last year.
“I think a lot of people now have a good opportunity to buy [our] stock,” he said.
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Stock Swoon
Edwards Lifesciences shares were pummeled after the company warned of lackluster results in the fourth quarter. Daily closes:
Tuesday’s close: $13.44
Source: Bloomberg News
