) reported adjusted earnings per share (after considering certain
one-time adjustments other than amortization expense) of 10 cents
in the third quarter of 2013, in line with the year-ago adjusted
However, considering amortized expense adjustments, the
quarter's adjusted EPS came in at 17 cents, beating the year-ago
adjusted EPS by a penny. This also exceeded the company's
adjusted EPS guidance range of 14-16 cents. The Zacks Consensus
Estimate for the reported quarter was 17 cents.
However, without these adjustments, the company reported net
loss of $5 million, or break-even EPS in the quarter, comparing
favorably with year-ago net loss of $663 million or a loss of 48
cents a share.
Revenues remained flat year over year (up 4% at constant
exchange rate or CER, excluding divested business) at $1.735
billion. Although the figure exceeded the Zacks Consensus
Estimate of $1.729 billion, it remained within the
company-provided guidance range of $1.700−$1.860 billion. The
company also presented an encouraging performance in the BRIC
(Brazil, Russia, India and China) nations with 28% (29% at CER)
year-over-year sales growth during the quarter.
Boston Scientific currently has three global reportable
segments comprising Cardiovascular, Rhythm Management and
The company generates maximum revenues from Cardiovascular,
which comprises Interventional Cardiology and Peripheral
Interventions. Sales in these sub-segments were $472 million
(down 2% year over year at CER) and $195 million (up 7% at CER),
respectively, during the quarter.
Global sales of coronary stent system (within Interventional
Cardiology) were $277 million, down 8.9%. The downfall was owing
to a disappointing performance from drug-eluting stents (DES)
that declined 7.4% to $262 million, and bare-metal stents that
plunged 28.6% to $15 million.
The next biggest contributor to Boston Scientific's top line
is Rhythm Management, which includes Cardiac Rhythm Management
(CRM) and Electrophysiology. This segment also continued to
disappoint with flat third-quarter revenues of $498 million on a
year-over-year basis (up 1% at CER). Worldwide CRM revenues
remained flat at $464 million.
Sales from pacemakers were down 0.7% to $134 million, while
defibrillators edged up 0.9% to $330 million. Electrophysiology
sales deteriorated 3% year over year (down 1% at CER) to $34
Over the recent past, the company has been targeting new
product launches to revive the sales of the beleaguered
Interventional Cardiology and CRM segments. However, the dismal
performance of these segments during the reported quarter proved
beyond doubt that these measures have not been enough to counter
the ongoing challenges.
Other segments like Endoscopy, Urology/Women's Health and
Neuromodulation (coming under the MedSurg broader group) recorded
sales of $322 million (up 8% at CER), $131 million (up 8%) and
$115 million (up 32%), respectively.
Gross margin grew 277 basis points (bps) year over year to
70.6%. Adjusted operating margin however contracted 98 bps to
18.6% in the quarter. During the reported quarter, selling,
general and administrative expenses grew 11.7% to $658 million,
research and development expenses dropped 1.4% to $217 million
and royalty expense declined 3.4% to $28 million.
Boston Scientific exited the quarter with cash and cash
equivalents of $571 million, up from $207 million at the end of
fiscal 2012 and had long-term debt of $4.25 billion. The company
generated operating cash flow of $250 million and repurchased 6.8
million shares during the quarter under the existing share
Boston Scientific provided its fourth-quarter guidance and
updated its fiscal 2013 outlook. In the upcoming quarter, the
company expects to report adjusted EPS of 18-20 cents
(considering amortized expense adjustments) on revenues of $1.780
to $1.830 billion. The current Zacks Consensus Estimate for EPS
of 20 cents coincides with the higher end of the company's
outlook, although the same for revenues of $1.819 billion falls
within the company's guidance.
For full year 2013, the company tightened its revenue guidance
to the band of $7.085−$7.135 billion (the earlier provided range
being $7.050−$7.170 billion). Adjusted EPS was narrowed to the
range of 69−71 cents from 67−71 cents guided previously. The
Zacks Consensus Estimate for revenues stands at $7.120 billion,
while that for EPS is 70 cents.
2014 Restructuring Initiative
During the earnings call, Boston Scientific also announced a
restructuring program for 2014. Major actions under this
plan includes continued implementation of the company's ongoing
Plant Network Optimization strategy, continued focus on driving
operational efficiencies and current business and commercial
The company expects this plan to reduce gross annual pre-tax
operating expenses by $150−$200 million by the end of 2015.
It also plans to make savings through this restructuring program,
to reinvest a part of it in strategic growth initiatives.
According to BSX, this will lead to around 1,100−1,500 job cuts
worldwide through attrition and targeted headcount
reductions. The company expects this program to be brought
into effect from the fourth quarter of 2013 through 2015.
In a separate press release, Boston scientific also announced
that its existing executive vice president and chief financial
officer Jeffrey Capello will shed off his role effective Dec 31,
2013. Daniel Brennan, currently the company's senior vice
president and corporate controller, will be taking up his
Boston Scientific managed to beat estimates in the third
quarter of 2013. However, challenging economic conditions,
competitive environment, pressure on core segments and currency
fluctuations remain major headwinds.
Despite several initiatives undertaken by the company to
revive its top line, we remain cautious as its core segments,
implantable cardioverter defibrillator and DES continue to face
The US defibrillator market remains an overhang for Boston
Scientific and its peers. The DES business in the U.S. has been
witnessing challenges due to pricing pressure, lower procedural
volume, lower penetration rates and share losses from the launch
) Resolute Integrity stent.
However, to revive its top line, Boston Scientific is focusing
on strategic initiatives to drive growth and profitability. These
include the recently announced restructuring initiatives,
strengthening of its portfolio, targeting suitable acquisitions
in areas of unmet medical needs, and focus on emerging markets.
However, near-term visibility of these initiatives remains a
matter of question.
Currently, Boston Scientific retains a Zacks Rank #2 (Buy).
MedTech companies such as
Mindray Medical International Ltd
Bio-Rad Laboratories, Inc.
), which carry a Zacks Rank #1 (Strong Buy), are also worth
BIO-RAD LABS -A (BIO): Free Stock Analysis
BOSTON SCIENTIF (BSX): Free Stock Analysis
MEDTRONIC (MDT): Free Stock Analysis Report
MINDRAY MEDICAL (MR): Free Stock Analysis
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