Alcon Q2 Earnings Meet Estimates, Revenues Increase Y/Y

Alcon, Inc. ALC delivered core earnings per share of 74 cents in the second quarter of 2024, up 7.2% from the year-ago quarter's figure (up 15% at the constant exchange rate or CER). The figure came in line with the Zacks Consensus Estimate.

Alcon reports ‘core' results based on non-IFRS (International Financial Reporting Standards) measures. In the second quarter, the company's diluted EPS was 45 cents, up 32.4% year over year.

Revenues in Detail

Alcon's net sales to third parties in the second quarter were $2.48 billion, which missed the Zacks Consensus Estimate by 1.4%. However, the top line increased by 3.3% from the year-ago quarter's levels (up 6% at CER).

Quarter in Detail

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

Surgical

In the second quarter of 2024, Surgical sales amounted to $1.42 billion, up 3% year over year and 6% at CER. Our model projected the segment's growth to be 3.5% versus the prior year.

Within this, net sales in Implantables increased 6%, led by the demand for advanced technology intraocular lenses in international markets. Our model projected 3.1% year-over-year growth.

Consumables increased 3%, mainly driven by cataract and vitreoretinal consumables, particularly in international markets, and price increases. Our model's projection was an increase of 4.9%.

Equipment/Other was down 3% from the prior-year quarter's levels. Our model forecast stood at 0.1% growth.

Vision Care

The segment reported total sales of $1.11 billion, up 7% year over year on a reported basis and 10% at CER. Our model's projection was 6.7% growth.

Net sales of Contact Lenses increased 9% year over year, driven by product innovation, including toric multifocal modalities and price increases. This surpassed our model's projected growth of 8% year over year.

Ocular Health sales increased 5% year over year, primarily driven by the portfolio of eye drops, including continued strength from the Systane family of artificial tears. Our model forecast was 4.9%.

Margins

The cost of net sales in the second quarter was $1.12 billion, up 5.9% year over year. The core gross profit rose 0.8% to $1.37 billion in the reported quarter. Meanwhile, the core gross margin contracted 123 basis points (bps) to 55.1% in the second quarter of 2024.

SG&A expenses increased 0.6% year over year, while R&D expenses rose 1.4% year over year. The core operating margin fell 26 bps in the second quarter to 12.7%.

Financial Position

Alcon exited the second quarter of 2024 with cash and cash equivalents of $1.37 billion compared with $1.14 billion at the end of the first quarter.

The cumulative net cash flow from operating activities at the end of the second quarter was $871 million compared with $410 million in the year-ago period. Free cash flow totaled $667 million at the end of the second quarter of 2024 compared with $189 million in the comparable 2023 months.

2024 Outlook

Alcon reiterated its financial outlook for 2024.

The company anticipates 2024 net sales in the range of $9.90-$10.10 billion (unchanged), indicating growth of 7%-9% at CER from 2023. The Zacks Consensus Estimate for ALC's revenues is pegged at $9.94 billion.

Core EPS for the full year is expected in the range of $3.00-$3.10 (same as earlier). This suggests growth of 15%-18%% at CER from the 2023 levels. The Zacks Consensus Estimate for Alcon's 2024 earnings is currently pegged at $3.05 per share.

Our Take

Alcon closed the second quarter of 2024 with in-line earnings, while revenues missed estimates. On a positive note, the top line improved on a year-over-year basis. The performance was driven by robust demand for the company's innovative products, balanced geographic footprint and strong execution by the team. Growth in the Vision Care segment underscores the strength of contact lenses.

In June 2024, Alcon's innovations from the highly anticipated UNITY portfolio, Vitreoretinal Cataract System and Cataract System, secured the FDA's 510(k) clearance. In the second half of the year, Alcon is preparing for product launches that are set to drive its next phase of growth in 2025 and beyond.

Meanwhile, the contraction of both margins in the quarter is discouraging.

Zacks Rank and Other Key Picks

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

Some other top-ranked stocks from the broader medical space are Intuitive Surgical, DaVita Inc. DVA and Veracyte VCYT.

Intuitive Surgicalreported a third-quarter 2024 adjusted EPS of $1.78, which beat the Zacks Consensus Estimate by 16.3%. Revenues of $2.01 billion topped the consensus estimate by 2%. ISRG currently sports a Zacks Rank #1 (Strong Buy).

Intuitive Surgical has an estimated long-term earnings growth rate of 16.8% in 2024 compared with the industry's 11.8%. The company's earnings surpassed estimates in each of the trailing four quarters, the average being 8.97%.

DaVita, sporting a Zacks Rank #1, reported second-quarter 2024 adjusted earnings of $2.59, which surpassed the Zacks Consensus Estimate by 4.9%. Revenues of $3.19 billion topped the Zacks Consensus Estimate by 0.7%. 

DVA has an estimated long-term earnings growth rate of 17.5% compared with the industry's 12.4%. The company surpassed earnings estimates in each of the trailing four quarters, the average being 24.2%.

Veracyte, sporting a Zacks Rank #1, reported second-quarter diluted earnings of 30 cents per share compared with the Zacks Consensus Estimate of a loss of 3 cents. Revenues of $114.4 million exceeded the Zacks Consensus Estimate by 14%.

VCYT has an estimated 2024 earnings growth rate of 112.8% compared with the industry's 11.8%. The company surpassed earnings estimates in each of the trailing four quarters, the average being 328.4%.

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