3 Things to Slice and Dice in Intuitive Surgical's Earnings

Intuitive Surgical is set to release first-quarter earnings after the bell on Tuesday. The maker of robotic surgery systems is notorious for low-balling its estimates, but given the uncertainty with capital spending, management didn't even bother giving revenue or earnings estimates for 2015.

When analyzing the numbers, don't forget that the first quarter of 2014 represented a low point for da Vinci system sales, so year-over-year comparisons will be slightly inflated compared to reality. Comparison with the fourth quarter won't help much since the first quarter tends to be lighter than the rest of the year, often coming in with lower system sales than the previous fourth-quarter number due to capital spending cycles by hospitals.

Beyond the revenue and earnings numbers, here are three things you should pay attention to during the earnings announcement and conference call.

da Vinci Xi Patient Cart.Source: Intuitive Surgical.

da Vinci XI salesAs fellowMotley Fool analyst Karl Thiel commented after last quarter's earnings, sales of the new da Vinci Xi machine are key to Intuitive Surgical's growth because the machine can perform procedures that aren't possible on the earlier models. As the penetration into urology and gynecology procedures reaches their peak, Intuitive Surgical needs other procedures to provide further growth.

Fortunately, adoption has been fairly quick over the first three quarters of the launch, with Xi sales more than double the sales of the older models in the fourth quarter. Look for that trend to continue upwards, keeping in mind -- as mentioned earlier -- that the absolute volume of sales may be lower since hospitals tend to spend more on capital equipment in the fourth quarter than the first quarter.

Trade-ins matterIt's easy to shrug off models that are traded in as the cost of doing business that provide some benefits to the company. Intuitive Surgical books a sale of an upgraded model, albeit at a discounted price. And the newer model should generate increased sales of consumables compared to the older model. Compared to leaving the older model in place, a trade-in for the newer model is a win for Intuitive Surgical.

But the better scenario for Intuitive Surgical is for a hospital to keep the older model and buy a newer one, providing twice as many machines generating revenue from consumables. And the procedures that can be performed on the older model aren't hogging time on the new machine, potentially increasing the growth of new procedures.

Fortunately, the number of trade-ins hasn't been a huge issue. In the fourth quarter, only two of the 97 Xi systems were trade-ups. If we see equally low numbers in the first quarter, it'll be a good sign that Intuitive Surgical won't be cannibalizing future consumable sales with the new machine.

Shares repurchasedIn February, the board announced a $1 billion share repurchase plan. As is typical, there wasn't a timeline given for when management would make the purchases, but it'll be interesting to see if the repurchases have already begun.

Shares are up a good bit since the announcement, but they dipped a little in March, providing a potential buying opportunity for Intuitive Surgical. The cheaper the price, the more shares the company can retire with the $1 billion, and the bigger the boost the repurchase will give to its earnings per share.

The article 3 Things to Slice and Dice in Intuitive Surgical's Earnings originally appeared on Fool.com.

Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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