) reported adjusted earnings per share (after considering certain
adjustments other than amortization expense) ("EPS") of 12 cents
in the second quarter of 2013, a penny ahead of the year-ago
However, considering the amortized expense adjustments, the
quarter's adjusted EPS came in at 18 cents, beating the year-ago
adjusted EPS of 17 cents. This exceeds the company's adjusted EPS
guidance range of 14-17 cents. The Zacks Consensus Estimate for
the reported quarter was 16 cents.
Revenues declined 1% year over year (up 2% at constant
exchange rate or CER, excluding divested business) to $1.809
billion during the second quarter of 2013. However, it exceeded
the Zacks Consensus Estimate of $1.779 billion as well as the
company provided guidance range of $1.740−$1.800 billion. The
company also presented an encouraging performance in the BRIC
(Brazil, Russia, India and China) nations with 29% (same at CER)
sales growth during the quarter.
Boston Scientific currently has three new global reportable
segments comprising Cardiovascular, Rhythm Management and
The company generates maximum revenues from Cardiovascular,
which comprises Interventional Cardiology and Peripheral
Interventions. Sales at these sub-segments were a respective $520
million (down 3% year over year at CER) and $199 million (up 5%
at CER), during the quarter.
Global sales of coronary stent system (within Interventional
Cardiology) were $304 million, down 10.6% due to a disappointing
performance from drug-eluting stents ("DES") that declined 9.7%
to $287 million and bare-metal stents that plunged 22.7% to $17
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 a 2% decline during the reported quarter to $511
million. Worldwide CRM revenues remained at $475 million, with a
2.7% drop in sales. Sales from pacemakers remained flat year over
year, while defibrillators declined 3.7% to $342 million.
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 current challenges.
Other segments like Endoscopy, Urology/Women's Health and
Neuromodulation (coming under the MedSurg broader group) recorded
sales of $325 million (up 8% at CER), $124 million (up 1%) and
$111 million (up 21%), respectively.
Gross margin grew 232 basis points (bps) year over year to
70.7%. Adjusted operating margin expanded 58 bps to 19.2% in the
quarter. During the reported quarter, selling, general and
administrative expenses grew selling 2% to $661 million, research
and development expenses increased 4.7% to $223 million and
royalty expense declined 2.1% to $41 million.
Boston Scientific exited the quarter with cash and cash
equivalents of $530 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 $396 million and repurchased
12.5 million shares during the quarter under the existing share
Boston Scientific provided its third-quarter guidance and
updated its fiscal 2013 outlook. For the third quarter, the
company expects to report adjusted EPS of 14-16 cents on revenues
of $1.700−$1.860 billion. The current Zacks Consensus Estimate
for EPS of 16 cents is in line with the outlook, although the
same for revenues stands beyond the company's guidance at $1.715
For full year 2013, the company increased its revenue guidance
to the band of $7.050 to $7.170 billion (earlier $6.950 to $7.150
billion) with adjusted EPS in the range of 67−71 cents (65−70
cents previously). The Zacks Consensus Estimate for revenues
stands at $7.052 billion, while EPS is at 67 cents. While the
revenue estimate was within the company's guidance range, EPS
estimate remained at the lower end.
After several dismal quarters, Boston Scientific managed to
beat estimates in the second quarter of 2013. However,
challenging economic conditions, competitive environment,
pressure on core segments and currency fluctuations remain major
Despite several initiatives undertaken by the company to
revive its top line, we remain cautious as its core segments,
implantable cardioverter defibrillator and DES (contributing 35%
of sales) continue to face challenges.
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 restructuring initiatives, strengthening of its
portfolio, targeting suitable acquisitions in areas of unmet
medical needs and focus on emerging markets.
Currently, Boston Scientific retains a Zacks Rank #4 (Sell).
Medical products companies such as
), which carry a Zacks Rank #1 (Strong Buy), are worth
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