Alcon Inc. (SIX/NYSE: ALC) reported its first-quarter earnings on 12 May 2020. The company recorded a rise in its sales by 3% amounting to $1.8 billion. The company was able to successfully launch ‘PATADAY’ which helped it strengthen its leadership in the US OTC Allergy market.
David Endicott, CEO of the company stated in the press release, “We saw strong sales growth in both franchises during the first two months of the year, led by key growth brands and new product launches. However, as the COVID-19 outbreak spread worldwide, the widespread shutdowns negatively impacted demand by mid-March.”
Further he continued stating, “As we navigate these challenging conditions, we remain focused on the safety of our associates and supporting our customers. To help contribute to our community safety, our associates are producing personal protective equipment and hand sanitizers for first responders, which is a testament to the resourcefulness of our people. Lastly, we are taking decisive actions to maintain our global supply chain and control our expenses and cash flow. Although we expect a significant impact on second-quarter results, the prudent actions we are taking will prepare us for recovery and preserve the ability to pursue our long-term goals.”
Sales and Revenue by business segments
(Source: Y Charts)
The company’s sales growth was attributed to its key growth platform- AT-IOLs, DAILIES TOTAL1 contact lenses, and SYSTANE COMPLETE eye drop under the Vision care segment. A strong sales growth in January and February helped the company absorb the significant decline in sales (since late March) which occurred due to the outbreak of the virus.
Surgical Segment:- The sales for the segment decreased by 2% to $984 million. Growth in service revenues was offset by a lower rate of surgical procedures as a result of the pandemic, hurting the demand for consumables and equipment.
Vision Care Segment:- The sales for the segment increased by 8% to $838 million. The reasons for an increase in the sales of the segment were- solid demand for DAILIES TOTAL1 and the successful launches of PRECISION and PATADAY.
Earnings per Share (EPS)
(Source: Y Charts)
For the first quarter of the year the company incurred losses in terms of the earnings per share. The diluted losses per share were $0.12 per share. The core diluted per share for the company stood at $0.45 which included $0.04 per share amount of interest on its financial borrowings.
Response to the Covid-19 Pandemic
The company has undertaken the following measures globally to minimize the effects of the virus spread on the business:
- Associate Safety: Enhanced safety protocols across all business sites, contact tracing, temperature screening and social distancing.
- Community: Sites have been selected for production of critical supplies, assistance by the Alcon Foundation
- Supply Chain: Most of the sites are fully operational with additional safety measures, ensuring there is no interruption in the product flow.
Furthermore, the company plans to move forward in these times by changing its outlook towards serving its customers. The company has included- Digital Marketing, Virtual training, Telehealth, E-commerce and restart of its programs in its operations.
Financial Outlook during the crisis: The company expects the second-quarter financials to be negatively impacted by the pandemic taking into consideration the critical nature of eye care. It expects the company to earn better once the situation starts to normalise in the economies and the customer demand starts to rise again. The company is expected to see improvement by the end of the year.
The company has taken actions to actively manage its working capital, cash flows and expenses. Capital allocation has been prioritised by the company to preserve its liquidity for as long as possible to overcome the uncertainty of the market. The company further focuses on managing its inventory effectively and preparing for its commercial programs to support its customers and patient needs as the situation would normalise.
Balance Sheet Highlights for the Quarter
The company has an existing credit revolving facility of $1 Billion as of 12 May 2020. The company has a net debt of $2.7 Billion at the end of the quarter which can be considered to refinance some of its spin-off borrowings. The company has no major debts that would be maturing before 2024 or no financial covenants.
The Cash and cash equivalents for the company amounted to $760 million. Among this head the cash flow from operations amounted to $30 million while the Free cash flow amounted to a negative $60 million.
Capital expenditure of $90 million was incurred by the company as a result of investments made in new VC manufacturing lines.
In the end, I would like to conclude, the company’s financials do not seem to be very strong and promising. The company has adopted a lot of measures and strategies to overcome the operational hindrances that been caused due to the current situation and would be able to stabilise its financial standings in the long term once the markets start to normalise. The main concentration now relies on the most effective use of its existing resources and innovating to move forward.