Alcon, Inc. ALC delivered core earnings per share (EPS) of 70 cents in the fourth quarter of 2023, up 66.7% from the year-ago quarter’s figure (up 78% at the constant exchange rate or CER). The figure topped the Zacks Consensus Estimate by 2.9%. Alcon’s “core” results are based on non-IFRS (International Financial Reporting Standards) measures.
In the fourth quarter, the company’s diluted EPS was 86 cents compared to a loss of 20 cents per share in the prior-year quarter.
For the full year, the core EPS was $2.74 (up 22.3% year over year and 33% at CER). The figure exceeded the Zacks Consensus Estimate by 0.4%.
Revenues in Detail
Alcon’s net sales to third parties in the fourth quarter were $2.33 billion, missing the Zacks Consensus Estimate by 0.3%. However, the top line increased 8.2% from the year-ago quarter’s levels (up 10% at CER).
For the full-year 2023, net sales were $9.37 billion, up 8.3% from 2022. However, the figure missed the Zacks Consensus Estimate by 0.2%.
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 fourth quarter of 2023, Surgical sales amounted to $1.35 billion, up 6.1% year over year and 8% at CER. Our estimate projected a year-over-year improvement of 3.2%.
Within this, net sales in Implantables increased 1%, led by the demand for advanced technology intraocular lenses in the international market. This missed our model’s projected year-over-year increase of 7.2% for the fourth quarter.
Consumables increased 8%, while Equipment/Other was up 11% from the prior-year quarter’s levels. Both surpassed our model’s projected improvement of 1.4% and 0.1% for consumables and equipment/other, respectively.
Vision Care
The segment reported total sales of $980 million, up 11.2% year over year on a reported basis and 13% at CER. Our model projected a year-over-year rise of 14.9%.
Net sales of Contact Lenses increased 9% year over year, driven by product innovation, including sphere and toric product launches and price increases. Our model projected an improvement of 15.4% in this segment.
Ocular Health sales increased 14% year over year, primarily driven by the portfolio of eye drops, including acquired ophthalmic pharmaceutical products, price increases and recovery from supply-chain challenges in contact lens care. Our model’s projection was 14.1% growth.
Margins
The cost of net sales in the fourth quarter was $1.05 billion, up 6.4% year over year. The core gross profit rose 9.8% to $1.28 billion in the reported quarter. The core gross margin expanded 77 basis points (bps) to 55% in the fourth quarter of 2023.
SG&A expenses increased 3.6% year over year, while R&D expenses rose 31.8% from the 2022 comparable figure. The core operating margin expanded 226 bps in the fourth quarter to 12.0%.
Financial Position
Alcon exited the fourth quarter of 2023 with cash and cash equivalents of $1.09 billion compared with $980 million at the end of 2022.
The cumulative net cash flow from operating activities at the end of the fourth quarter was $1.39 billion compared with $1.22 billion in the year-ago period. Free cash flow totaled $730 million at the end of the fourth quarter of 2023 compared with $581 million at 2022-end.
2024 Outlook
Alcon initiated its financial outlook for 2024.
The company anticipates 2024 net sales in the range of $9.9-$10.1 billion, indicating growth of 6%-8% at CER from 2023. The Zacks Consensus Estimate for ALC’s revenues is pegged at $9.93 billion.
Core EPS for the full year is expected in the range of $3.00-$3.10. This suggests growth of 13%-16%% at CER from the 2023 levels. The Zacks Consensus Estimate for Alcon’s 2024 earnings is currently pegged at $3.02 per share.
Our Take
Alcon’s earnings beat estimates, and revenues missed the same in the fourth quarter of 2023. The company delivered substantial growth in both of its franchises on the back of healthy markets. The expansion of margins in the quarter buoys optimism. Alcon also witnessed bottom-line growth while successfully completing its transformation program and advancing the product pipeline.
Surgical growth is driven by international markets, while the double-digit Vision Care growth reflects strength across the franchise, including acquired products and pricing. The company is presently working on several innovative products to support its customers and their patients, which are expected to outpace market growth, deliver operating leverage and create long-term shareholder value. This bodes well for the stock.
However, the escalation of costs in the quarter raises our concern.
Zacks Rank and Key Picks
Alcon currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks from the broader medical space are Stryker Corporation SYK, Cencora, Inc. COR and Cardinal Health CAH.
Stryker, carrying a Zacks Rank #2 (Buy), reported a fourth-quarter 2023 adjusted EPS of $3.46, beating the Zacks Consensus Estimate by 5.8%. Revenues of $5.8 billion outpaced the consensus estimate by 3.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stryker has an estimated earnings growth rate of 11.5% for 2025 compared with the S&P 500’s 9.9%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 5.1%.
Cencora, carrying a Zacks Rank #2, reported a first-quarter fiscal 2024 adjusted EPS of $3.28, which beat the Zacks Consensus Estimate by 14.7%. Revenues of $72.3 billion outpaced the Zacks Consensus Estimate by 5.1%.
COR has an earnings yield of 5.75% compared with the industry’s 1.85%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 6.7%.
Cardinal Health, sporting a Zacks Rank #1, reported second-quarter fiscal 2024 adjusted earnings of $1.82, which beat the Zacks Consensus Estimate by 16.7%. Revenues of $57.45 billion improved 11.6% on a year-over-year basis and also topped the Zacks Consensus Estimate by 1.1%.
CAH has a long-term estimated earnings growth rate of 15.3% compared with the industry’s 11.8% growth. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 15.6%.
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