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Boston Scientific's (BSX) Q3 Earnings In Line, Guidance Up

Boston Scientific Corporation BSX posted adjusted earnings per share (EPS) of 31 cents in the third quarter of 2017, up 14.8% from the year-ago quarter. This figure remained in line with the Zacks Consensus Estimate, and fell exactly at the upper end of the company's adjusted EPS guidance range of 29-31 cents.

Without these adjustments, the company reported earnings of 20 cents per share, up 17.6% from the year-ago period.

Revenues in Detail

Revenues in the third quarter were up 5.6% year over year on reported basis and up 5.7% on operational basis (at constant exchange rate or CER) to $2.22 billion. The figure topped the company's guidance of $2.18-$2.21 billion and also exceeded the Zacks Consensus Estimate of $2.20 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 third quarter (excluding the impact of changes in foreign currency exchange rates and sales from the acquisitions of EndoChoice Holdings and Symetis SA) was 4.3% year over year.

Geographically, in the third quarter, the company achieved operational growth of 4.2% in the U.S. (up 2.8% organically), up 8.8% in Europe (up 5.3%); up 7.8% in the Asia, Middle East and Africa region (same) and up 18.3% in the emerging markets (up 18%).

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 subsegments — Interventional Cardiology and Peripheral Interventions — were $589 million (up 4.2% year over year at CER) and $268 million (up 5.1%), respectively, during the third quarter.

The second largest contributor to Boston Scientific's top line was Rhythm Management, which includes Cardiac Rhythm Management (CRM) and Electrophysiology. CRM reflected a 0.9% year-over-year increase in sales to $463 million at CER in the reported quarter.

Worldwide, sales from pacemakers (within CRM) declined 4.5% to $149 million while defibrillators were up 0.9% to $314 million.

Electrophysiology sales went up 17.6% year over year at CER to $71 million.

Other segments like Endoscopy, Urology and Pelvic Health and Neuromodulation (under the MedSurg broader group) recorded sales of $403 million (up 10% at CER), $274 million (up 10.2%) and $154 million (up 11%), respectively.

Margins

Gross margin contracted 45 basis points (bps) year over year to 71.3% on 7.2% rise in cost of products sold. Adjusted operating margin improved by a marginal 4 bps to 23.2% in the reported quarter. During the quarter, selling, general and administrative expenses went up 3.6% to $800 million, while research and development expenses increased 9.5% to $254 million. Royalty expenses reduced 20% to $16 million in the quarter.

Balance Sheet

Boston Scientific exited the third quarter with cash and cash equivalents of $210 million, up from $195 million at the end of the sequential last quarter. At the end of the third quarter, the company had a total long-term debt of $5.68 billion, a marginal decline from $5.84 billion at the end of the second quarter.

Guidance

Boston Scientific has provided an update to its full-year 2017 guidance.

Banking on a solid third-quarter show and a gradually improving foreign exchange scenario, the company raised its 2017 revenue guidance to the range of $8.985-$9.015 billion (annualized growth of 7-8% on reported basis and growth of 7% on operational basis including contribution of approximately 120 bps from EndoChoice and Symetis) from the earlier band of $8.89-$8.99 billion (annualized growth of 6-7% on reported basis and growth of 6-8% on operational basis). The current Zacks Consensus Estimate for revenues is $8.95 billion, below the guided range.

Adjusted EPS guidance range for 2017, has been slightly narrowed to $1.24-$1.27 from the earlier range of $1.23-$1.27. The Zacks Consensus Estimate of $1.25 is within this guided range.

The company also provided its fourth-quarter 2017 financial guidance. Adjusted earnings are expected in the band of 32-35 cents per share on revenues of $2.345-$2.375 billion. The Zacks Consensus Estimate for EPS stands at 34 cents while for revenues, it is $2.32 billion.

Our Take

Despite back-to-back natural disasters, Boston Scientific managed to register solid third-quarter performance with earnings in line with the Zacks Consensus Estimate and revenues, ahead of the mark. A gradually improving foreign exchange scenario has also started to contribute to the company’s overall topline performance.The raised guidance is all the more impressive and indicative of this overall bullish trend to continue through the rest of 2017.

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 third quarter. We are also encouraged with the company gaining a number of approvals for its products, both in the domestic and overseas markets.

Among the recent developments, worth mentioning is the company's recent acquisition of Apama Medical, the developer of the single-shot Apama Radiofrequency (RF) Balloon Catheter System for the treatment of atrial fibrillation.This apart, the company received an FDA approval forMRI labeling and announced the U.S. launch of the Resonate family of implantable cardioverter defibrillator (ICD) and cardiac resynchronization therapy defibrillator (CRT-D) systems. This combines the HeartLogic Heart Failure Diagnostic, EnduraLife battery technology and SmartCRT Technology.

This apart, the company received CE Mark for updated ‘Directions for Use’ for the WATCHMAN LAAC Device in Europe. The company’s ACURATE neo Transapical Aortic Valve System has also gained CE Mark. The company expects to begin a controlled launch throughout Europe during the fourth quarter of 2017.

Zacks Rank & Other Key Picks

Currently, Boston Scientific carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader medical sector are PetMed Express, Inc. PETS, Abbott ABT and Intuitive Surgical, Inc. ISRG. Notably, PetMed sports a Zacks Rank #1 (Strong Buy), while Abbott and Intuitive Surgical carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed reported EPS of 43 cents in second-quarter fiscal 2018, up 79.2% from the year-ago quarter’s 24 cents. Also, gross margin expanded 548 bps year over year to 35.2% in the reported quarter.

Abbott reported third-quarter 2017 adjusted earnings from continuing operations of 66 cents per share, up 11.9% year over year. Also, third-quarter worldwide sales came in at $6.83 billion, up 28.8% year over year. 

Intuitive Surgical posted adjusted earnings of $2.77 per share in third-quarter 2017, up 34.5% on a year-over-year basis. Also, revenues increased 18% year over year to $806.1 million.

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