Bausch & Lomb Earnings: Healthy Top Line, but Cost Headwinds Hurt Earnings; Shares Still Cheap

Narrow-moat Bausch & Lomb BLCO reported first-quarter earnings that were lower than anticipated. We are maintaining our $25 fair value estimate as our lowered near-term assumptions are offset by the time value of money.

Total sales were up 4.7% year over year, driven by all three segments showing positive results despite unfavorable foreign-exchange impacts. Visioncare was up 4.8%, due predominantly to positive volume growth and slightly to increased pricing from earlier this year. The contact lens portfolio was mainly driven by Infuse, Bausch’s daily silicone hydrogel lens, which was up 38% during the quarter. Bausch expects to launch a multifocal version of Infuse next quarter. The consumer business continued to grow, with strategic brands like Lumify, PreserVision, and Biotrue all maintaining their leading positions. Lumify, a redness reliever eyedrop, is a clear market leader in the United States with over 50% share, and Bausch acquired the rights to market it in 18 additional countries during the quarter. Given its effectiveness and the company’s brand power, we expect this launch will be a solid top-line contributor.

Surgical was up 5.2% as high-cost and high-margin premium intraocular lenses continued to perform well. Bausch has a low share of the U.S. intraocular lens market compared with its key competitors, but it’s pushing to further penetrate the space with its acquisition of AcuFocus, which added more intraocular lenses to its portfolio. We see a good runway for the segment for the rest of the year as China’s environment recovers and supply chain issues slowly dissipate.

While the better-than-expected top line showed promising signs, operating expenses were much higher than we had forecast. Dissynergy costs from the company becoming a stand-alone entity, manufacturing costs for new silicone hydrogel lenses, and inflationary pressures were all significant headwinds for Bausch.