BostonScientific ( BSX )
reported a net loss of $3.4 billion or $2.39 per share in the
second quarter of 2012, a disappointment from net income of $146
million or earnings per share ("EPS") of 10 cents in the year-ago
period. This was primarily due to an estimated impairment charge of
$3.405 billion or $2.38 per share related to the company's Europe,
Middle East and Africa ("EMEA") reporting unit.
The segment paid the price for lower projected long-term growth
rates due to macroeconomic factors and their impact on the European
In the first quarter of 2011, the company had recorded a
goodwill impairment charge of $723 million associated with a
reduction in the estimated size of the US Cardiac Rhythm Management
After considering certain adjustments (other than amortization
expense), EPS in the reported quarter came in at 11 cents, in line
with the Zacks Consensus Estimate and a penny below the year-ago
quarter's adjusted EPS.
The challenges rife in Boston Scientific's core segments
consisting of stents and defibrillators do not show any sign of
abatement. Revenues declined 7% year over year (5% at constant
exchange rate or CER) to $1.828 billion during the second quarter
of 2012, lagging the Zacks Consensus Estimate of $1.884 billion.
Excluding the impact of divested businesses and at CER, net sales
Unfavorable currency movement has been a major dampener during
the quarter, which also reflected in the earnings of other
important MedTech players like Johnson &
Johnson ( JNJ ), Zimmer Holdings ( ZMH )
and St Jude Medical ( STJ ),
While revenues derived from the domestic market declined 9% year
over year to $947 million, international revenues dropped 5% to
$851 million (up 1% at CER). Other than the 11% growth (at CER) in
the Inter-Continental market ($214 million), Boston Scientific
recorded a drop in revenues in both Japan (2% to $235 million) and
EMEA (2% to $402 million).
As per the guidance provided during first quarter results,
Boston Scientific expected to report adjusted EPS of 8-11 cents on
revenue of $1.85−$1.95 billion during the quarter. While the
company met its EPS forecast, revenue missed the guidance.
Boston Scientific derives maximum revenues from Cardiovascular,
which comprises Interventional Cardiology and Peripheral
Interventions. Sales at these sub-segments were a respective $549
million (down 13% year over year at CER) and $196 million (up 7%),
during the quarter.
Global sales of coronary stent system (within Interventional
Cardiology) at $340 million declined 20.5% due to a disappointing
performance from both drug-eluting stents ("DES") that declined
20.5% to $318 million and bare-metal stents that plunged 21.4% to
The next biggest contributor to Boston Scientific's top line,
CRM, continued to disappoint with an 8% (at CER) drop in sales to
$488 million during the quarter. Sales from pacemakers and
defibrillators declined 11.9% to $133 million and 9.7% to $355
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 proved beyond doubt 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 (unchanged at CER), $311 million (up 7%), $126
million (unchanged) and $91 million (up 10%), respectively.
The company recorded a 270 basis point (bps) year-over-year rise
in gross margin to 67.9%. Operating margin nonetheless remained
almost unchanged at 18.2% in the reported quarter, based on a 4.5%
drop in research and development expenses to $213 million, a 7.7 %
decline in royalty expense to $48 million while selling, general
and administrative expenses remained almost flat at $648
Boston Scientific exited the quarter with cash and cash
equivalents of $371 million, up from $267 million at the end of
fiscal 2011 with long-term debt of $4.2 billion. The company
generated operating cash flow of $407 million and repurchased 18
million shares during the quarter under the 2011 share repurchase
program. The company also experienced a positive impact from the
7.3% decline in the share count as a result of the continuous share
For the third quarter of fiscal 2012, Boston Scientific expects
to report adjusted EPS of 8-11 cents on revenue of $1.725−$1.825
billion. The current Zacks Consensus Estimate of 11 cents in EPS is
in line with the outlook though the consensus revenue estimate of
$1.830 billion exceeds the company's guidance.
For the fiscal, the company lowered its revenue guidance to
$7.2−$7.4 billion from the prior expectation of $7.35−$7.65
billion. On a GAAP basis, the company expects to report a loss of
$2.16−$2.09 per share.
After adjusting for estimated impairment and other one-time
charges, the EPS guidance has been narrowed to 38−44 cents compared
to the earlier guidance of 36−46 cents. The Zacks Consensus
Estimates for revenue and adjusted EPS stand at $7.437 billion and
43 cents, respectively.
The headwinds currently at play for Boston Scientific's CRM
segment also had an adverse impact on its peer, St Jude
Medical 's second quarter performance that was reported last
week. Besides, economic uncertainty is continuing to affect
During the first quarter, the company had envisioned stability
in the US defibrillator market and easing of pricing pressure in
the DES market. However, we do not expect any significant
improvement in the near term, reflected in the lowering of guidance
by both Boston Scientific and St Jude Medical.
Accordingly, the company remains focused on strategic
initiatives to drive growth and profitability. The US approval of
Ingenio and Advantio pacemakers and Invive cardiac
resynchronization therapy pacemakers should provide some cushion to
the struggling device maker.
We are encouraged by the company's decision to acquire Cameron
Health, which would bring in the unique subcutaneous implantable
Longer term, we have a Neutral recommendation on Boston
Scientific. The stock retains a Zacks #3 Rank (Hold) in the short
BOSTON SCIENTIF (BSX): Free Stock Analysis
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ST JUDE MEDICAL (STJ): Free Stock Analysis
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