Boston Scientific (BSX) Misses on Q1 Earnings, Updates View
Boston Scientific Corporation BSX posted adjusted earnings per share (EPS) (after considering certain one-time adjustments other than amortization expense) of 20 cents in the first quarter of 2017, up 5.3% from the year-ago quarter.
Considering amortized expense adjustments, the quarter’s adjusted EPS came in at 29 cents, up 3.6% from the year-ago adjusted number. The figure, although remained in line with the lower-end of the company's adjusted EPS guidance range of 29–31 cents, missed the Zacks Consensus Estimate by a penny.
Without these adjustments, the company reported earnings of 21 cents per share, up 40% year over year.
Revenues in Detail
Revenues in the first quarter were up 10% year over year on both reported and operational basis (at constant exchange rate or CER) to $2.16 billion. The figure topped the company’s guidance of $2.05–$2.10 billion and also exceeded the Zacks Consensus Estimate of $2.08 billion.
Boston Scientific Corporation Price, Consensus and EPS Surprise
Boston Scientific Corporation Price, Consensus and EPS Surprise | Boston Scientific Corporation Quote
Organic revenue growth in the first quarter (excluding the impact of changes in foreign currency exchange rates and sales from the acquisition of EndoChoice Holdings) was 9% year over year.
Geographically, in the first quarter, the company achieved growth of 13% in the U.S. (up 11% organically), 2% in Europe (up 7%) and 9% in the Asia, Middle East and Africa region (up 8% both operational basis and organically) and 12% in the emerging markets (same).
Segment Analysis
Boston Scientific currently has three global reportable segments: Cardiovascular, Rhythm Management and MedSurg.
The company generates maximum revenues from Cardiovascular. Sales from its sub segments, Interventional Cardiology and Peripheral Interventions were $590 million (up 8% year over year at CER) and $261 million (up 7%), respectively, during the first quarter.
The second largest contributor to Boston Scientific’s top line was Rhythm Management, which includes Cardiac Rhythm Management (CRM) and Electrophysiology. CRM reflected an 8% year-over-year increase in sales to $463 million at CER in the reported quarter.
Worldwide sales from pacemakers (within CRM) increased 21.3% to $148 million while defibrillators were marginally up 1.3% to $315 million.
Electrophysiology sales went up 9% year over year at CER to $64 million.
Other segments like Endoscopy, Urology and Pelvic Health and Neuromodulation (under the MedSurg broader group) recorded sales of $379 million (up 14% at CER), $262 million (up 15%) and $141 million (up 17%), respectively.
Margins
Gross margin contracted 92 basis points (bps) year over year to 69.9% on 13.4% increase in cost of products sold. Adjusted operating margin also contracted 123 bps to 21.5% in the reported quarter. During the quarter, selling, general and administrative expenses went up 10.9% to $794 million while research and development expenses increased 11.9% to $235 million. Royalty expenses reduced 10.5% to $17 million.
Balance Sheet
Boston Scientific exited the first quarter with cash and cash equivalents of $156 million, down from $196 million at the end of 2016. At the end of the first quarter, the company had total long-term debt of $5.14 billion, a marginal reduction from $5.47 billion at the end of 2016.
Guidance
Boston Scientific has provided an update to its full-year 2017 guidance.
The company raised its 2017 revenue guidance to the range of $8.80–$8.90 billion (annualized growth of 5% to 6% on reported basis and growth of 6% to 7% on operational basis including contribution of approximately 70 bps from EndoChoice) from earlier band of $8.68–$8.88 billion (annualized growth of 3% to 6% on reported basis and growth of 5% to 7% on operational basis). The current Zacks Consensus Estimate for revenues is $8.78 billion, below the guided range.
Adjusted EPS guidance range for 2017, however, has been reiterated at $1.22−$1.26. The Zacks Consensus Estimate of $1.24 is within the guidance range.
The company also provided its second-quarter 2017 financial guidance. Adjusted earnings are expected in the band of 30–32 cents per share on revenues of $2.19–$2.22 billion. The Zacks Consensus Estimate for EPS stands at 31 cents while for revenues it is $2.22 billion.
Our Take
Amid challenging economic conditions, a competitive environment and severe currency headwinds, Boston Scientific posted a mixed first quarter, with earnings missing the Zacks Consensus Estimate and revenues ahead of the mark. While foreign exchange headwinds continue to pose challenges, we are concerned with the company’s recent recall of one of its prime products, Lotus range of heart devices. Also the unimpressive defibrillator performance within the company’s core CRM segment continues to remain a drag for the overall growth.
Nevertheless, Boston Scientific is leaving no stone unturned to strengthen its core businesses and invest in new technologies and global markets, which accounted for higher sales across all its geographies in the first quarter. Moreover, we are encouraged with the company gaining a number of approvals for its products, both in the domestic market and outside.
Among the recent developments, worth mentioning is the company’s plan to acquire Switzerland-based Symetis SA for $435 million in up-front cash, in a bid to fortify its structural heart business in Europe. This apart, NICE’s (National Institute for Health and Care Excellence) recommendation on Boston Scientific’s cardiac resynchronization therapy defibrillators (CRT-D) with EnduraLife Battery Technology for treating patients with heart failure was important.
Zacks Rank & Key Picks
Boston Scientific currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the broader Medical space include Inogen, Inc. INGN, ZELTIQ Aesthetics, Inc. ZLTQ and Hill-Rom Holdings, Inc. HRC. While Inogen and ZELTIQ Aesthetics sport a Zacks Rank #1 (Strong Buy), Hill-Rom carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Inogen gained 62% in the last one year, compared with the S&P 500’s gain of 14.0%. The company reported a stellar four-quarter positive average earnings surprise of over 49.08%.
ZELTIQ Aesthetics surged 82.8% in the last one year, compared with the S&P 500’s gain. Its four-quarter average earnings surprise was a positive of 12.30%.
Hill-Rom gained over 33.7% in the past one year, better than the S&P 500 mark. It posted a trailing four-quarter positive average earnings surprise of 3.1%.
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