Boston Scientific Tops Q4 Earnings; CRM Remains a Drag

Boston Scientific CorporationBSX announced adjusted earnings per share (EPS) (after considering certain one-time adjustments other than amortization expense) of 16 cents in the fourth quarter of 2015, up 6.7% from the year-ago quarter.

However, considering amortized expense adjustments, the quarter's adjusted EPS came in at 26 cents, up 18.2% from the year-ago adjusted number and a penny ahead of the Zacks Consensus Estimate. The figure also steered ahead of the company's adjusted EPS guidance range of 23-25 cents.

Without these adjustments, the company reported a net loss of $142 million or loss of 11 cents per share, narrower than the year-ago net loss of $299 million or loss of 23 cents per share, respectively.

For 2015, adjusted EPS came in at 93 cents, a 10.7% hike from the year-ago period. The yearly EPS also edged past the Zacks Consensus Estimate of 91 cents as well as the company's guidance of 90-92 cents.

Boston Scientific Corporation (BSX) EPS BNRI & Surprise Percent - Last 5 Quarters | FindTheCompany

Revenues in Detail

Revenues in the fourth quarter were up 5% year over year on a reported basis and up 10% on an operational basis (at constant exchange rate or CER, excluding divested business) to $1.978 billion. The figure falls near the lower end of the company's guidance of $1.970-$2.010 billion but fails to meet the Zacks Consensus Estimate of $1.992 billion.

Full-year 2015 revenues were $7.477 billion, up 1% year over year on a reported basis and up 8% on an operational basis. While revenues came in close to the lower end of the company's guidance range of $7.470-$7.510 billion, the same missed the Zacks Consensus Estimate of $7.491 billion by a small margin.

Organic revenue growth in the fourth quarter (excluding the impact of sales from divested businesses, changes in foreign currency exchange rates and sales from the acquisitions of the interventional business of Bayer AG and the American Medical Systems (AMS) male urology portfolio in the year-ago quarter) was 5% year over year.

Geographically, in the fourth quarter, the company achieved 12% growth in the U.S. (5% organic), 10% growth in Europe (5%), 7% in the Asia, Middle East and Africa (AMEA) region (6%) and 16% in the emerging markets (15%), all at CER.

Segment Analysis

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

The company generates maximum revenues from Cardiovascular, which comprises Interventional Cardiology and Peripheral Interventions. Sales in these sub-segments were $525 million (up 6% year over year at CER) and $231 million (up 10%), respectively, during the fourth quarter. However, severe foreign currency headwind impacted the quarter's sales in each of these two sub-segments by 6%.

The second largest contributor to Boston Scientific's top line was Rhythm Management, which includes Cardiac Rhythm Management (CRM) and Electrophysiology. CRM reflected 1% year-over-year decline in sales to $440 million at CER.

Worldwide sales from pacemakers (within CRM) dropped 3.9% to $124 million, while defibrillators were down 6.8% at $316 million due to a difficult foreign exchange scenario.

Electrophysiology sales, however, jumped 8% year over year at CER to $61 million.

Other segments like Endoscopy, Urology and Pelvic Health and Neuromodulation (coming under the MedSurg broader group) recorded sales of $343 million (up 7% at CER), $237 million (up 77%) and $141 million (up 7%), respectively.


Gross margin was up 71 basis points (bps) year over year to 71%. Adjusted operating margin expanded 43 bps to 18.6% in the quarter. During the reported quarter, selling, general and administrative expenses improved 3.3% to $777 million while research and development expenses increased 17.3% to $244 million. Royalty expense declined 32% to $17 million.

Balance Sheet

Boston Scientific exited the fiscal with cash and cash equivalents of $39 million, down from $587 million at the end of 2014. At the end of the fourth quarter of 2015, the company had total long-term debt of $5.68 billion, up from $4.24 billion at 2014 end.


Boston Scientific has also provided its first quarter and full-year 2016 guidance. The company projects 2016 revenues in the range of $7.900-$8.100 billion (annualized growth of 6% to 8% on a reported basis and growth of 7% to 10% on an operational basis). The current Zacks Consensus Estimate of revenues is $8.07 billion, close to the upper end of the guidance range.

Adjusted EPS guidance for 2016 has been projected in the range of $1.03 to $1.07. The Zacks Consensus Estimate of $1.04 is near the lower end of the guidance range.

For the first quarter of 2016, adjusted earnings are expected in the band of 23-25 cents per share on revenues of $1.89-$1.94 billion. The Zacks Consensus Estimate for EPS stands at 24 cents, while that for revenues is $1.933 billion.

Our Take

Despite challenging economic conditions, a competitive environment and severe currency headwinds, Boston Scientific managed to post a better-than-expected fourth-quarter 2015, with respect to earnings. However, revenues missed the mark. While severe foreign exchange headwind continues to pose major challenges, we are also concerned with the disappointing performance in the company's core CRM segment with worldwide pacemakers and defibrillator sales declining over the past few quarters.

Nevertheless, Boston Scientific is leaving no stone unturned to strengthen its core businesses and invest in new technologies and global markets, which accounted for the sales upside across all its businesses and regions in the fourth quarter. Moreover, in the quarter, the company gained a number of approvals for its products, both in the domestic market and outside.

Among recent developments, ones worth mentioning are the launch of the SYNERGY Stent System in the U.S. and Japan and the initiation of the EVOLVE Short DAPT clinical trial to assess the duration of dual anti-platelet therapy (DAPT) in patients receiving a bioabsorbable polymer drug-eluting stent. It is encouraging to note that the company has successfully gained SYNERGY reimbursement in France - the largest drug-eluting stent market in Europe by revenue.

Additionally, Boston Scientific received the CE mark for its next-generation WATCHMAN FLX Left Atrial Appendage Closure Device and began the European launch of the same. All these developments are expected to strengthen the company's portfolio in an effective way, as well as boost the top line in the upcoming quarters.

Zacks Rank

Currently, Boston Scientific holds a Zacks Rank #4 (Sell). Some of the better-ranked Medical Product stocks are Hill-Rom Holdings, Inc. HRC , LeMaitre Vascular, Inc. LMAT and Vascular Solutions Inc. VASC , all with a Zacks Rank #1 (Strong Buy).

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BOSTON SCIENTIF (BSX): Free Stock Analysis Report

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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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