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Boston Scientific (BSX) Q3 Earnings Top, Margins Decline

Boston Scientific Corporation BSX posted adjusted earnings per share (EPS) of 37 cents for the third quarter of 2020, down 5.1% from the year-ago figure. However, the figure exceeded the Zacks Consensus Estimate by 48%. The reported quarter’s adjustments take into consideration certain amortization expense, acquisition/divestitures-related net charges and impairment charges among others.

Reported loss in the third quarter was 12 cents per share against year-ago EPS of 9 cents.

Although the quarter’s adjusted earnings dropped year over year, strong sequential improvement was reported.

Boston Scientific Corporation Price, Consensus and EPS Surprise

 

Boston Scientific Corporation Price, Consensus and EPS Surprise

Boston Scientific Corporation price-consensus-eps-surprise-chart | Boston Scientific Corporation Quote

Revenues of $2.66 billion in the third quarter dipped 1.8% year over year on a reported basis, down 2.5% on an operational basis (at constant exchange rate or CER). Revenues declined 5.7% on an organic basis (adjusted for foreign currency fluctuations and certain recent acquisitions and divestments). The top line, however, beat the Zacks Consensus Estimate by 5.6%.

Q3 Revenues in Detail

In the third quarter, revenues declined 4.2% in the United States on a reported basis (same operationally). Revenues were up a marginal 0.8% in the Europe, Middle East and Africa region (down 2.9%); down 2.6% in the Asia Pacific zone (down 4.1%); down 24.3% in Latin America and Canada (down 16.6%) and down 10.3% in emerging markets (down 7.1%).

Segmental Analysis

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

The company generates maximum revenues from Cardiovascular. Sales from its sub segments, namely Interventional Cardiology and Peripheral Interventions were $586 million (down 16.8% year over year organically) and $416 million (up 2%), respectively, in the third quarter.

Boston Scientific's Rhythm and Neuro business comprises Cardiac Rhythm Management (CRM), Electrophysiology and Neuromodulation. CRM reflected a 3.7% year-over-year decline in organic sales to $465 million in the reported quarter.

Electrophysiology sales were down 7.5% year over year, organically, to $76 million. Neuromodulation sales declined 3% year over year on an organic basis to $216 million.

Other segments like Endoscopy plus Urology and Pelvic Health (under the MedSurg broader group) recorded sales of $475 million (down 3% organically) and $350 million (down 0.5%), respectively.

Margins

Gross margin in the third quarter contracted 398 basis points (bps) year over year to 67.3%. There was an 11.8% rise in the cost of products sold to $869 million.

Selling, general and administrative expenses dropped 2.8% to $984 million while research and development expenses improved 2.9% to $315 million. Meanwhile, royalty expenses of $12 million fell 20% year over year. Despite that, adjusted operating margin declined 404 bps to 18% in the reported quarter.

Guidance

The uncertainties regarding the duration and impact of the coronavirus pandemic on the company’s overall business had earlier compelled Boston Scientific to suspend its previously-issued 2020 financial guidance. This time too, the company could not come out with any update on its full-year guidance.

Our Take

Boston Scientific delivered better-than-expected third-quarter performance. Although earnings and revenues declined year over year, the company registered strong sequential improvement in overall financial performance.

Sales at each of its core business segments and geographies were down in the reported quarter but the magnitude of this decline was significantly low compared to the second-quarter results.

Among major developments in the quarter, the company received FDA approval for its AVVIGO Guidance Systemto be used during percutaneous coronary intervention procedure. Further, it received U.S. approval for the high bleeding risk indication for the SYNERGY and SYNERGY XD Bioabsorbable Polymer Drug-Eluting Stent Systems. It obtained CE Mark and initiated a limited market release in Europe of the WaveWriter Alpha portfolio of spinal cord stimulator (SCS) systems. It has also secured CE Mark and initiated a limited market release in Europe of the fourth generation Vercise Genus Deep Brain Stimulation (DBS) System to treat the symptoms of Parkinson's disease, essential tremor and dystonia.

Zacks Rank and Stocks to Consider

Boston Scientific currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. WST, Thermo Fisher Scientific Inc. TMO and Align Technology, Inc. ALGN.

West Pharmaceutical reported third-quarter 2020 adjusted EPS of $1.15, beating the Zacks Consensus Estimate by 13.9%. Net revenues of $548 million outpaced the consensus estimate by 7.2%. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher, a Zacks Rank #1 company, reported third-quarter 2020 adjusted EPS of $5.63, beating the Zacks Consensus Estimate by 28.8%. Revenues of $8.52 billion outpaced the consensus mark by 10%.

Align Technology reported third-quarter 2020 adjusted EPS of $2.25, surpassing the Zacks Consensus Estimate by a stupendous 281.4%. Net revenues of $734.1 million exceeded the Zacks Consensus Estimate by 38%. It currently sports a Zacks Rank #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.

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