BSX Disappoints, Guidance Weak - Ahead of Wall Street

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The challenges of Boston Scientific Corporation 's ( BSX ) core segments consisting of stents and defibrillators do not show any sign of abatement. Revenues declined 8% year over year to $1.848 billion during the fourth quarter 2011 and missed the Zacks Consensus Estimate of $1.908 billion. Excluding the impact from divested businesses and at constant exchange rates (CER), net sales dropped 5%. For the full year, sales dropped 2% (5% at CER) to $7.622 billion, nominally missing the Zacks Consensus Estimate of $7.662 billion.

The companyreported an EPS of 7 cents during the fourth quarter of fiscal 2011 compared with 20 cents in the year-ago period. However, after considering certain adjustments (other than amortization expense), the adjusted EPS came in at 8 cents, in line with the Zacks Consensus Estimate, but lower than the year-ago quarter's adjusted EPS of 12 cents. For the fiscal, the adjusted EPS of 45 cents beat the Zacks Consensus Estimate by a penny and the previous year's 42 cents.

As per the guidance provided during third quarter results, Boston Scientific expected to report adjusted EPS of 8-11 cents on revenue of $1.85−$1.95 billion during the quarter and 44−47 cents on revenue of $7.624−$7.724 billion during the fiscal. While the company missed its EPS forecast during the quarter, revenue was just in line, at the low end of the guided range.

Segment contribution 

Boston Scientific derives maximum revenues from Cardiovascular, which comprises Interventional Cardiology and Peripheral Interventions. Sales at these sub-segments were a respective $594 million (down 8% year over year at CER) and $184 million (up 6%), during the quarter.

Global sales of coronary stent system (within Interventional Cardiology) at $381 million declined 6.8% due to disappointing performance from both drug-eluting stents ( DES ) that declined 5.6% to $356 million and bare-metal stents that dropped 21.8% to $25 million.

The next biggest contributor to Boston Scientific's top line, Cardiac Rhythm Management ( CRM ), continued to disappoint with a 15% drop in sales to $482 million during the quarter. Sales from pacemakers and defibrillators declined 5% to $134 million and 17.7% to $348 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 shows that these measures were not enough to ride over the challenges currently at play.

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), $304 million (up 6% at CER), $127 million (down 1%) and $91 million (up 6%), respectively.

Balance Sheet

Boston Scientific exited the fiscal with cash and cash equivalents of $267 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 generated operating cash flow of $349 million and repurchased 52 million shares taking the total repurchase for 2011 to 82 million shares.

The company's bottom line experienced a positive impact from the 3% decline in the share count as a result of the continuous share buyback program as well as a 32.7% decline in interest expense associated with a lower debt level.

Guidance        

Boston Scientific unveiled its guidance for the first quarter and fiscal 2012. For the first quarter, Boston Scientific expects to report adjusted EPS of 5-8 cents (lower than the current Zacks Consensus Estimate of 11 cents) on revenue of $1.825−$1.90 billion (slightly lower than the Zacks Consensus Estimate of $1.907 billion).

For the fiscal, the company expects revenue and adjusted EPS in the range of $7.3−$7.7 billion and 36−46 cents, respectively. The Zacks Consensus Estimates for revenue and adjusted EPS stand at $7.643 billion and 47 cents, respectively.

Our Take

We are disappointed with the fourth quarter results of Boston Scientific. Estimate revision trends among the analysts for the fourth quarter and the fiscal during the past 30 days reflected the issues troubling the company's core businesses and the current economic uncertainties. This is all the more evident in St. Jude Medical 's ( STJ ) recently reported results. Revenues from its CRM division fell 6% at CER year over year to $728 million, indicating sustained softness in the CRM market.

Boston Scientific has been undertaking several strategic initiatives over the past few quarters that included focus on emerging markets, restructuring initiatives, among others. Moreover, the launch of Promus Element Plus stent in US should lead to better operating margins going ahead. 

Longer term, we have a Neutral recommendation on Boston Scientific. The stock retains a Zacks #3 Rank ("Hold") in the short term.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks , US Markets

Referenced Stocks: BSX , CRM , DES , STJ

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