UPDATE 2-Intuitive Surgical profit falls as its robot sales drop

Thu Oct 17, 2013 6:11pm EDT

By Bill Berkrot

Oct 17 (Reuters) - Intuitive Surgical Inc on Thursday reported lower third-quarter profit as sales of its high-priced da Vinci surgical robots declined sharply, and it said full-year revenue growth was likely to come in at the lower half of its already slashed forecast range.

Intuitive shares fell nearly 8 percent after the results and updated forecasts were announced. They had already fallen about 20 percent since July, when the company dramatically cut its full year revenue growth forecast and warned that 2013 profit would be below Wall Street estimates.

Intuitive cut its revenue growth forecast to flat to 7 percent in July and now appears to see the upper half of that range as out of reach. It narrowed its full-year procedure growth forecast range to 16 percent to 17 percent from 15 percent to 18 percent.

Earlier in the year the company had been looking for revenue growth at the higher end of a 16 percent to 19 percent forecast and had expected procedure growth of 20 percent to 23 percent.

Intuitive, which had been accustomed to double-digit revenue growth and steadily rising da Vinci sales in past years, saw its recent woes continue through the third quarter.

"Our third-quarter results were impacted by the same pressures we faced in the first half of the year - namely, moderating growth in benign gynecology, combined with changing hospital capital spending priorities," Intuitive Surgical Chief Executive Gary Guthart said in a statement.

The business has also been hit by media reports questioning the cost effectiveness of using the robots for certain procedures and push back from insurance payors.

"The growth darling is no more," declared Morningstar analyst Alex Morozov. "Everybody has loved this company for so long primarily because the growth was seemingly just so easily achievable for them."

Morozov said the company may be a victim of its own past success. "What we are seeing here is a market that is oversaturated with (da Vinci) systems," he said.

The company sold 101 da Vinci surgical units in the quarter at a cost of about $1.5 million each, down from 155 sold in the year-ago quarter and 143 in the second quarter of this year.

Sixty five da Vinci systems were sold in the United States in the quarter, down from 114 a year earlier.

"The procedure growth is still there, the robots are still being utilized. Once we realize that the company's growth is not going to be driven by systems sales going forward, but more by procedures and instruments, I think folks' expectations will be reset," Morozov said.

Procedures using the da Vinci robots rose 16 percent in the quarter, driven by general surgery and gynecologic surgeries in the United States.

Hysterectomies are now the single largest procedure being performed using da Vinci robots, the company said, supplanting prostate surgeries that had once been the backbone of the business. Many patients with slowly progressing prostate cancer are now being advised to take a watch and wait approach rather than opting for surgery.

Intuitive said net profit fell to $157 million, or $3.99 per share, from $183 million, or $4.46 per share, a year ago. That exceeded analysts' severely diminished average expectations of $3.40 per share, according to Thomson Reuters I/B/E/S.

Revenue for the quarter fell 7 percent to $499 million, missing Wall Street estimates of $526 million.

Intuitive shares fell to $368 in extended trading from a Nasdaq close at $399.13.

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