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Boston Scientific (BSX) Beats on Q2 Earnings, Margins Down

Boston Scientific CorporationBSX posted adjusted earnings per share (EPS) of 41 cents in the second quarter of 2018, up 28.1% from the year-ago quarter. Earnings also surpassed the Zacks Consensus Estimate of 34 cents. Further, adjusted EPS exceeded the company's guided range of 33-35 cents.

The company reported EPS of 40 cents in comparison with EPS of 11 cents in the year-ago quarter.

Revenues in Detail

Revenues in the second quarter were up 10.3% year over year on a reported basis and up 8.6% on operational basis (at constant exchange rate or CER) to $2.49 billion. Revenues exceeded the Zacks Consensus Estimate of $2.47 billion.

Organic revenue growth in the quarter (excluding the impact of changes in foreign currency exchange rates and sales from the acquisition of Symetis SA, excluding prior period related net sales) was 7.9% year over year.

Boston Scientific Corporation Price, Consensus and EPS Surprise

Boston Scientific Corporation Price, Consensus and EPS Surprise | Boston Scientific Corporation Quote

Geographically, in the second quarter, the company achieved 7.9% operational growth in the United States (same organically), 9.6% in Europe, Middle East and Africa region (up 6.6%); 8.7% in the Asia Pacific region (same), 12.8% in Latin America and Canada (up 11.8%) and 21.1% in the emerging markets (up 20.6%).

Segment Analysis

Boston Scientific currently has three global reportable segments: Cardiovascular, Rhythm and Neuro and MedSurg.

The company generates maximum revenues from Cardiovascular. Sales from its subsegments - Interventional Cardiology and Peripheral Interventions - were $662 million (up 5.1% year over year organically) and $304 million (up 8.7%), respectively, during the second quarter.

The second largest contributor to Boston Scientific's top line was the Rhythm and Neuro business, comprising Cardiac Rhythm Management (CRM), Electrophysiology and Neuromodulation. CRM reflected a 1.2% year-over-year increase in organic sales to $494 million in the reported quarter.

Electrophysiology sales went up 15.8% year over year organically to $79 million.

Neuromodulation sales rose 30.6% year over year organically to $202 million.

Other segments like Endoscopy and Urology and Pelvic Health (under the MedSurg broader group) recorded sales of $442 million (up 8.9% organically) and $308 million (up 9.1%), respectively.

Margins

Gross margin in the second quarter contracted 170 basis points (bps) year over year to 70.3% on 16.9% rise in cost of products sold. Adjusted operating margin contracted 130 bps to 23% in the reported quarter. During the quarter, selling, general and administrative expenses went up 8.7% to $886 million and research and development expenses rose 12.7% to $275 million. Royalty expenses remained flat at $17 million in the quarter.

Guidance Updated

Boston Scientific has provided an updated guidance for 2018. The company now projects current-year revenues in the range of $9.800-$9.880 billion compared to the previous range of $9.750-$9.900 billion. This represents an annualized growth of 8-9% on a reported basis and 6-7% on an organic basis (at CER and excluding contribution of approximately 40 bps from acquisitions). The Zacks Consensus Estimate for current-year revenues is pegged at $9.81 billion, within the guided range.

The company continues to expect adjusted EPS for 2018 in the band of $1.37-$1.41. The Zacks Consensus Estimate of $1.39 is within the guided band.

The company also provided its third-quarter 2018 financial outlook. Adjusted EPS is expected in the band of 33-35 cents on revenues of $2.380-$2.420 billion. The consensus mark for EPS stands at 34 cents while the same for revenues is at $2.39 billion.

Our Take

Boston Scientific reported an impressive second quarter. Growth across all business lines and geographies was promising. The 2018 view also paints a bright picture for the near term.

Boston Scientific is leaving no stone unturned to strengthen its core businesses and invest in new technologies as well as global markets, which have accounted for the uptick in sales across all geographies in the second quarter.

We are also optimistic about the company receiving FDA approval, CE Mark and Japanese Pharmaceuticals and Medical Devices Agency approval for its rotational atherectomy technology - the ROTAPRO Rotational Atherectomy System.

During the quarter, Boston Scientific closed the acquisitions of Cryterion Medical, Inc. and NxThera, Inc.

Zacks Rank & Key Picks

Boston Scientific currently carries a Zacks Rank #4 (Sell). A few better-ranked stocks in the broader medical space are Insulet Corporation PODD , Align Technology, Inc. ALGN and Integer Holdings Corporation ITGR .

Insulet is expected to release second-quarter fiscal 2018 results on Aug 2. The Zacks Consensus Estimate for the quarter's loss per share is pegged at 13 cents and for revenues at $132.9 million. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Integer Holdings is slated to release second-quarter 2018 results on Aug 2. The Zacks Consensus Estimate for EPS is pinned at 90 cents and for revenues at $381.8 million. The company is a Zacks #1 Ranked player.

Align Technology is expected to release second-quarter 2018 results on Jul 25. The Zacks Consensus Estimate for adjusted EPS is pinned at $1.09 and for revenues at $469.2 million. The stock carries a Zacks Rank of 1.

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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 Nasdaq, Inc.


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

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