Boston Scientific Corporation (BSX) reported an EPS of 9 cents during the third quarter of fiscal 2011 compared with 12 cents in the year-ago period. However, after considering certain adjustments (other than amortization expense), the adjusted EPS came in at 10 cents beating the Zacks Consensus Estimate of 8 cents, but missing the year-ago quarter’s adjusted EPS of 12 cents.
Revenues declined 2% year over year to $1.874 billion during the quarter and missed the Zacks Consensus Estimate of $1.906 billion. Excluding the impact of foreign currency and sales from divested businesses, net sales dropped 3%. Moreover, gross margin declined to 63.7% from 67.5% in the year-ago quarter.
Boston Scientific’s third quarter guidance was an adjusted EPS of 6–9 cents on revenue of $1.87−$1.97 billion. While the company exceeded its EPS forecast, revenue was just in line, at the low end of the guided range.
The company has adopted a restructuring program to strengthen its operational effectiveness, increase competitiveness and support new investments. Consequently, about $19 million ($29 million pre-tax) of restructuring charge was recorded during the reported quarter.
Segment contribution
Boston Scientific derives maximum revenues from Cardiovascular, which comprises Interventional Cardiology and Peripheral Interventions. Sales at these sub-segments were a respective $613 million (flat year over year) and $182 million (up 9%).
Global sales of coronary stent system (within Interventional Cardiology) at $402 million increased 1.5% driven by higher sales of drug-eluting stents (DES), up 2.7% to $375 million), partially offset by a 13% decline in sales of bare-metal stents to $27 million. Boston Scientific’s market share in the global DES market remained unchanged at 36% (on a sequential basis) while dropped by a percentage point in the US to 49% (46% at first quarter end).
The next biggest contributor to Boston Scientific’s top line, Cardiac Rhythm Management (CRM), continued to disappoint with a 9% drop in sales to $503 million. While pacemaker sales remained almost flat at $143 million, sales of defibrillators declined 11.3% to $360 million.
Other segments of the company – Electrophysiology, Endoscopy, Urology/Women’s Health and Neuromodulation recorded sales of $36 million (flat on a year over year basis), $298 million (up 11%), $124 million (up 2%) and $84 million (up 6%), respectively.
Balance Sheet
Boston Scientific exited the reported quarter with cash and cash equivalents of $276 million, up from $213 million at the end of fiscal 2010. It is encouraging to note that the company was able to reduce its debt level to $4.2 billion, consistent with the targeted capital structure, from $4.9 billion at the end of December 2010. The company also purchased 30 million shares for $192 million under its $1.25 billion share repurchase authorization.
Guidance
Boston Scientific updated its guidance for fiscal 2011. The company now expects revenue and adjusted EPS in the range of $7.624−$7.724 billion (previous guidance of $7.675−$7.875 billion) and 44−47 cents (41-47 cents), respectively. The revenue guidance now assumes a $204 million ($201 million) negative impact from the divestment of Neurovascular business. The Zacks Consensus Estimates for revenue and adjusted EPS stand at $7.775 billion and 45 cents, respectively.
For the fourth quarter of fiscal 2011, Boston Scientific expects to report adjusted EPS of 8–11 cents on revenue of $1.85−$1.95 billion. The current Zacks Consensus EPS Estimate of 10 cents is in line with the guidance while the consensus for revenue at $1.970 billion exceeds the company forecast.
Recommendation
Boston Scientific’s continuous focus on strategic initiatives to drive growth and profitability should yield steady results. However, the decline in defibrillator sales is a niggling area of concern. The competitive landscape is also tough with the presence of players such as Medtronic (MDT) and St Jude Medical (STJ).
We are currently Neutral on Boston Scientific.
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