Boston Scientific (BSX) is scheduled to release its second quarter fiscal 2011 earnings on Thursday, July 28, 2011 before the market opens. The company is expected to report EPS of 8 cents on revenue of $1.936 billion for the quarter, according to the Zacks Consensus Estimate.
Previous Quarter Highlights
Boston Scientific reported an EPS of 1 cent during the first quarter of fiscal 2011 compared to a loss of $1.05 per share in the year-ago period. However, the first quarter witnessed a $759 million ($530 million after tax) gain, recognized on the sale of the Neurovascular business to Stryker Corporation (SYK). Moreover, having witnessed, a reduction in the estimated size of the US Cardiac Rhythm Management (CRM) market, the company recorded a $723 million of goodwill impairment charge associated with its US CRM business unit during the quarter. After considering these and some other adjustments (other than amortization expense), the adjusted EPS came in at 15 cents beating the Zacks Consensus Estimate of 4 cents and the year-ago quarter’s 9 cents.
Revenues of $1.925 billion declined 2% year over year and surpassed the Zacks Consensus Estimate of $1.898 billion. However, excluding the impact of foreign currency and sales from divested business, net sales dropped 1%.
Boston Scientific also updated its guidance for fiscal 2011. The company now expects revenue and adjusted EPS in the range of $7.6−$7.9 billion (previous guidance of $7.5−$7.9 billion) and 34−44 cents (26-36 cents), respectively.
For the second quarter of fiscal 2011, Boston Scientific expects to report an adjusted EPS of 7-10 cents on revenue of $1.92−$2 billion.
Agreement of Analysts
Estimate revision trends among the analysts for the second quarter have been insignificant. Over the last 30 days, out of 22 analysts covering the stock, only 1 raised estimate for the quarter with none moving in the opposite direction. However, for fiscal 2011, 5 analysts have increased their estimates with 3 downward revisions.
The primary challenge being witnessed by Boston Scientific is that, about 48% of its revenues, comprising of defibrillators, pacemakers and coronary stent system are recording lower revenues. Pricing pressures especially in the markets of CRM and DES, and increased competition were the primary issues in the recent past.
Having witnessed a reduction in the estimated size of the US CRM market, Boston Scientific recorded a $723 million of goodwill impairment charge associated with its US CRM business unit during the last reported quarter. Additionally, economic uncertainty is impacting procedure volume. Moreover, the sudden decision of Ray Elliott to retire in 2011 will again make the growth path uncertain. We expect an update from the company regarding the pricing scenario as well as the status of the appointment of the new CEO.
The recent decision of Johnson & Johnson (JNJ) to exit the stent market is expected to improve the competitive scenario for Boston Scientific as well as other players such as Medtronic (MDT). We expect an update from the company regarding this.
Magnitude of Estimate Revisions
For the second quarter, estimates have remained unchanged at 8 cents over the last 7 and 30 days. For fiscal 2011 as well, estimates remained static at 40 cents per share over the past 1 month.
Our Recommendation
Boston Scientific continues to focus on strategic initiatives to drive growth and profitability. However, we continue to remain concerned with its core business where the company is witnessing significant pricing pressure and loss of market share. Moreover, economic uncertainty is impacting procedure volume. However, the company anticipates launching several new products in the coming quarters, which should revive its business slightly. Moreover, several acquisitions were made in the recent past to target the areas of unmet medical needs. The restructuring initiatives undertaken should also lead to improvement in bottom line.
We currently have a Neutral recommendation on the stock.
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