The challenges rife in
Boston Scientific Corporation
's (
BSX
) core segments consisting of stents and defibrillators do not show
any sign of abatement. Revenues declined 3% year over year to
$1.866 billion during the first quarter of 2012, but surpassed the
Zacks Consensus Estimate of $1.858 billion. Excluding the impact of
divested businesses and at constant exchange rates ("CER"), net
sales dropped 3%.
While revenues derived from the domestic market declined 4% year
over year to $978 million, international revenues remained
unchanged at $859 million (at CER). Other than the 9% growth in the
Inter-Continental market ($205 million), Boston Scientific recorded
a drop in revenues in both Japan (2% at CER to $238 million) and
EMEA (3% at CER to $416 million).
The company reported earnings per share (
EPS
) of 8 cents during the reported quarter compared with 3 cents in
the first quarter of fiscal 2011. However, after considering
certain adjustments (other than amortization expense), the adjusted
EPS came in at 9 cents, a penny above the Zacks Consensus Estimate,
but lower than the year-ago quarter's adjusted EPS of 15 cents.
As per the guidance provided during fourth quarter results,
Boston Scientific expected to report adjusted EPS of 5-8 cents on
revenue of $1.825−$1.90 billion during the quarter. While the
company exceeded its EPS forecast, revenue was within the
guidance.
Segment Analysis
Boston Scientific derives maximum revenues from Cardiovascular,
which comprises Interventional Cardiology and Peripheral
Interventions. Sales at these sub-segments were a respective $603
million (down 5% year over year at CER) and $190 million (up 8%),
during the quarter.
Global sales of coronary stent system (within Interventional
Cardiology) at $387 million declined 5.8% due to disappointing
performance from both drug-eluting stents ("DES") that declined
4.2% to $363 million and bare-metal stents that plunged 20% to $24
million.
The next biggest contributor to Boston Scientific's top line,
Cardiac Rhythm Management ("CRM"), continued to disappoint with a
10% drop in sales to $501 million during the quarter. Sales from
pacemakers and defibrillators declined 6.3% to $133 million and
11.7% to $368 million, respectively.Over the recent past the
company has been targeting new product launches to revive the sales
of the beleaguered Cardiovascular and CRM segments. However, the
dismal performance of these segments during the reported quarter
proves that these measures were not enough to ride over the
challenges currently at play.
Other segments of the company, namely - Electrophysiology,
Endoscopy, Urology/Women's Health and Neuromodulation - recorded
sales of $37 million (up 1% year over year at CER), $302 million
(up 5%), $120 million (unchanged) and $84 million (up 8%),
respectively.
Margins
The company was adversely affected by a 100 basis point (bps)
year-over-year drop in gross margin to 66.2%. Moreover, operating
margin came down to 16.8% in the reported quarter from 22.6% in the
year-ago period affected by a 10.6% rise in selling, general and
administrative expenses. Research and development expenses of $215
million inched up 1.4% year over year while royalty expense
recorded a 5.9% decline to $48 million.
Balance Sheet
Boston Scientific exited the quarter with cash and cash
equivalents of $284 million, up from $267 million at the end of
fiscal 2011 with long-term debt of $4.2 billion. The company
repurchased 23 million shares during the quarter taking the total
repurchase under the 2011 share repurchase program to 100 million
shares.
While lower margins adversely affected the company's bottom
line, it did experience a positive impact from the 5.3% decline in
the share count as a result of the continuous share buyback program
as well as an 8% decline in interest expense.
Guidance
For the second quarter of fiscal 2012, Boston Scientific expects
to report adjusted EPS of 8-11 cents on revenue of $1.85−$1.95
billion. The current Zacks Consensus Estimates of 10 cents in EPS
on $1.897 billion in revenues are within the company's
guidance.
For the fiscal, the company tightened its revenue guidance to
$7.35−$7.65 billion compared to the prior expectation of $7.3−$7.7
billion. The EPS guidance, however, remained unchanged at 36−46
cents. The Zacks Consensus Estimates for revenue and adjusted EPS
stand at $7.47 billion and 42 cents, respectively.
Recommendation
The headwinds currently at play for Boston Scientific's CRM
segment also had an adverse impact on its peer,
St Jude Medical
's (
STJ
) first quarter performance that was reported yesterday. Besides,
economic uncertainty is continuing to affect procedure volume.
Accordingly, the company remains focused on strategic
initiatives to drive growth and profitability. The launch of Promus
Element in the US and Japan along with the Ingenio family of
pacemakers in Europe should provide some cushion to the struggling
device maker. Besides, we are encouraged by the company's decision
to acquire Cameron Health, which would bring in the unique
subcutaneous implantable cardioverter defibrillator.
Longer term, we have a Neutral recommendation on Boston
Scientific. The stock retains a Zacks #3 Rank ("Hold") in the short
term.
BOSTON SCIENTIF (
BSX
): Free Stock Analysis Report
ST JUDE MEDICAL (
STJ
): Free Stock Analysis Report
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