Bausch & Lomb Caps Off Its Fiscal Year With Solid Top Line Growth

Narrow-moat Bausch & Lomb BLCO posted a solid quarter with good top line growth as it ramps up its vision and surgical portfolio. Margins were held back by continued currency headwinds and supply chain inflation, as well as increased research investment. We think the firm is catching up with the more robust portfolios of its peers in the surgical vision space with premium intraocular lens releases like the earlier AcuFocus acquisition and the recent LuxSmart launch in Europe. Guidance for fiscal 2023 will be provided in the first-quarter earnings release by Brent Saunders, who is returning as CEO. While adjusted net income has not yet turned positive, we think the firm is on track to grow its premium sales and improve mix. After evaluating the earnings, we are maintaining our fair value estimate.

Fourth-quarter revenue grew by 5% at constant currency, led by 5% growth in the vision care segment driven by eye-care vitamins, daily lenses, and eye drops. The surgical segment grew at by 2% (4% when excluding divestitures), and the ophthalmic segment grew by 7% due to strong sales in the U.S. Regarding the surgical segment, the pandemic backlog in eye procedures still persists due to a global shortage of nurses and technicians. Management estimates the backlog of cataract procedures in the U.S. to be around 15%. While a portion of these procedures may not be rebooked, that still leaves a large surplus of procedures to be completed, though this may be spread over many quarters.

Margins came in lower this quarter, but we see reasons for optimism. Gross margin was 190 basis points lower year over year, and EBITDA margin declined by around 100 basis points in our estimation. Inflation persisted in the cost of labor, shipping, and utilities. Aside from labor, these sources are largely short-term. Research costs grew by 14%, outpacing top line growth, but we believe this is a necessary overhead to support new product launches through 2023 and 2024.