Boston Scientific Corporation BSX announced adjusted earnings per share (EPS) (after considering certain one-time adjustments other than amortization expense) of 14 cents in the first quarter of 2015, 7.6% ahead of the year-ago adjusted number.
However, considering amortized expense adjustments, the quarter’s adjusted EPS came in at 21 cents, 5% ahead of the year-ago adjusted number and in line with the Zacks Consensus Estimate. The figure coincides with the upper end of the company's adjusted EPS guidance range of 19–21 cents.
Without these adjustments, the company reported net loss of $1 million or breakeven EPS in the quarter, significantly down from the year-ago net income of $135 million or EPS of 10 cents, respectively.
Revenues in Detail
Revenues in the first quarter remained unchanged year over year (up 6% growth at constant exchange rate or CER, excluding divested business) at $1.768 billion. The figure, although shy of the Zacks Consensus Estimate of $1.772 billion, was within the company’s guidance of $1.740−$1.800 million.
Segment Analysis
Boston Scientific currently has three global reportable segments comprising Cardiovascular, Rhythm Management and MedSurg.
The company generates maximum revenues from Cardiovascular, which comprises Interventional Cardiology and Peripheral Interventions. Sales in these sub-segments were $495 million (up 8% year over year at CER) and $217 million (up 14%), respectively, during the first quarter.
In Interventional Cardiology business, the recent FDA approvals of the WATCHMAN Left Atrial Appendage Closure Device and the EMBLEM Subcutaneous Implantable Defibrillator System render optimism.
The second largest contributor to Boston Scientific’s top line was Rhythm Management, which includes Cardiac Rhythm Management (CRM) and Electrophysiology. CRM reflected sales improvement of 4% to $456 million at CER.
Worldwide sales from pacemakers (within CRM) dropped 4.7% to $121 million, while defibrillators dipped 1.2% to $335 million due to a difficult foreign exchange scenario.
Electrophysiology sales, however, jumped 6% year over year at CER to $58 million.
Other segments like Endoscopy, Urology/Women’s Health and Neuromodulation (coming under the MedSurg broader group) recorded sales of $305 million (up 4% at CER), $123 million (up 3%) and $114 million (up 2%), respectively.
Margins
Gross margin was up 86 basis points (bps) year over year to 70.6%. Adjusted operating margin expanded 181 bps to 20.9% in the quarter. During the reported quarter, selling, general and administrative expenses rose 0.3% to $668 million while research and development expenses dropped 0.5% to $192 million. Royalty expense declined 57.5% to $17 million.
Balance Sheet
Boston Scientific exited the year with cash and cash equivalents of $242 million, down from $587 million at the end of fiscal 2014. The company had total long-term debt of $4.27 billion.
Guidance
Disappointed by its unimpressive first quarter results, Boston Scientific has reduced its full year 2015 revenue guidance. The company now projects 2015 revenues in the range of $7.225–$7.375, as against the earlier guided $7.300–$7.500 billion. The current Zacks Consensus Estimate for revenues stands at $7.46 billion, way ahead of the company’s outlook.
However, the company has reiterated its 2015 adjusted EPS (considering all one-time items including amortized expense) in the range of 88–92 cents. The current Zacks Consensus Estimate stands at 90 cents, at the midpoint of the guidance range.
For the second quarter of 2015, adjusted earnings are expected in the band of 20–22 cents per share on revenues of $1.800−$1.850 billion. The Zacks Consensus Estimate for EPS stands at 22 cents, while that for revenues is $1.854 billion.
Our Take
Amid challenging economic conditions, a competitive environment, and currency headwinds, Boston Scientific posted a disappointing first-quarter 2014, with earnings barely meeting the Zacks Consensus Estimate and revenues missing the benchmark.
Nevertheless, Boston Scientific continues to strengthen its core businesses and invest in new technologies and global markets, which were responsible for the sales upside across all its businesses and regions. We are impressed that the company has managed to post an impressive performance with balanced growth at CER across all its segments. In the first quarter, the company achieved international revenue growth of 7% year over year at CER, primarily driven by 6% growth in Europe and 7% in the Asia, Middle East and Africa (AMEA) region.
Moreover, in the quarter, the company inked several strategic partnerships, the most noteworthy being the one with C. R. Bard to distribute the Lutonix Drug Coated Balloon in the U.S. and another with Frankenman Medical Equipment Company to accelerate physician training and expand utilization of less invasive medical technologies in China. In addition, the company has entered into an agreement to acquire the American Medical Systems urology portfolio, including the Men's Health and Prostate Health businesses of Endo International plc.
However, a trimmed 2015 revenue guidance adds to our concerns.
Zacks Rank
Currently, Boston Scientific retains a Zacks Rank #3 (Hold). Some of the better-ranked Medical Product stocks are LeMaitre Vascular, Inc. LMAT, SurModics, Inc. SRDX and Vascular Solutions Inc. VASC, all with a Zacks Rank #1 (Strong Buy).
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