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Boston Scientific (BSX) Q2 Earnings Top, Margins Decline

Zacks Equity Research
·5 min read

Boston Scientific Corporation BSX posted adjusted earnings per share (EPS) of 8 cents for the second quarter of 2020, down 79.5% from the year-ago figure. The reported figure came in contrast to the Zacks Consensus Estimate of a loss of 4 cents per share. 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 second quarter was 11 cents per share against year-ago EPS of 11 cents.

The significant bottom-line decline indicates the severe impact of the COVID-19 outbreak on the company’s global sales during the quarter. We note that the coronavirus mayhem forced the corporate sector to halt production and supply globally.

Revenues in the second quarter plunged 23.9% year over year on a reported basis, down 23.1% on an operational basis (at constant exchange rate or CER). Revenues declined 28.7% on an organic basis (adjusted for foreign currency fluctuations and certain recent acquisitions and divestments) to $2.003 billion. The top line, however, beat the Zacks Consensus Estimate by 22.1%.

Boston Scientific Corporation Price, Consensus and EPS Surprise

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

Earlier, the company was unable to provide second-quarter sales and EPS guidance due to the ongoing uncertainty associated with the scope and duration of the COVID-19 pandemic.

Q2 Revenues in Detail

In the second quarter, revenues declined 28.4% in the United States on a reported basis (same operationally). Revenues declined 27.2% in the Europe, Middle East and Africa region (down 25.6%); 14.8% in the Asia Pacific zone (down 14%); 49.4% in Latin America and Canada (down 43.1%) and 19.7% in the emerging markets (down 14.6%).

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 $495 million (down 28.8% year over year organically) and $340 million (down 17.4%), respectively, in the second quarter.

Boston Scientific's Rhythm and Neuro business comprises Cardiac Rhythm Management (CRM), Electrophysiology and Neuromodulation. CRM reflected a 28.8% year-over-year decline in organic sales to $351 million in the reported quarter.

Electrophysiology sales were down 38.9% year over year, organically, to $51 million. Neuromodulation sales declined 42.6% year over year on an organic basis to $122 million.

Other segments like Endoscopy plus Urology and Pelvic Health (under the MedSurg broader group) recorded sales of $348 million (down 25.5% organically) and $228 million (down 32.4%), respectively.

Margins

Gross margin in the second quarter contracted 1068 basis points (bps) year over year to 60.5%. There was a 4.4% rise in the cost of products sold to $798 million.

Selling, general and administrative expenses dropped 17.6% to $798 million while research and development expenses declined 13.6% to $242 million. Meanwhile, royalty expenses of $8 million fell 52.9% year over year. Despite that, adjusted operating margin declined 1492 bps to 8.2% 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 disappointing year-over-year earnings and revenues performances for the second quarter. Sales at each of its core business segments and geographies were significantly down in the reported quarter, affected by lower demand for non-COVID-19 healthcare products and elective procedures. Despite the company’s reduction in operational expenses, both the margins contracted massively on huge revenue loss.

Among major developments in the quarter, the company received FDA approval for its WATCHMAN FLX Left Atrial Appendage Closure (LAAC) device, indicated to reduce the risk of stroke in patients with non-valvular atrial fibrillation. Further, it received U.S. approval for the SYNERGY XD Bioabsorbable Polymer (BP) Drug-Eluting Stent (DES) System. Further, the company received FDA 510(k) clearance and began limited market release for the LUX-Dx Insertable Cardiac Monitor (ICM) System to detect arrythmias associated with conditions such as atrial fibrillation (AF), cryptogenic stroke and syncope. The company’s Eluvia Drug-Eluting Vascular Stent System received regulatory approval from China's Center for Medical Device Evaluation and it has plans to begin a limited market release by the end of 2020.

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, Patterson Companies, Inc. PDCO and Laboratory Corporation of America Holdings LH or LabCorp. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

West Pharmaceutical reported second-quarter 2020 adjusted EPS of $1.25 in contrast to the Zacks Consensus Estimate of a loss of 91 cents. Net revenues of $527.2 million outpaced the consensus estimate by 6.9%.

Patterson reported fourth-quarter fiscal 2020 adjusted EPS of 43 cents, surpassing the Zacks Consensus Estimate by 152.9%. Revenues of $1.29 billion outpaced the consensus mark by 1.9%.

LabCorp reported second-quarter 2020 adjusted EPS of $2.57, surpassing the Zacks Consensus Estimate of 78 cents. Revenues of $2.77 billion outpaced the consensus mark by 14.3%.

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