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Boston Scientific (BSX) Tops Q1 Earnings, Raises Guidance

Boston Scientific Corporation BSX announced adjusted earnings per share (EPS) (after considering certain one-time adjustments other than amortization expense) of 19 cents in the first quarter of 2016, up 35.7% from the year-ago quarter.

However, considering amortized expense adjustments, the quarter’s adjusted EPS came in at 28 cents, up 33.3% from the year-ago adjusted number and 16.7% ahead of the Zacks Consensus Estimate. The figure also steered past the company's adjusted EPS guidance range of 23–25 cents.

Without these adjustments, the company reported earnings of 15 cents per share, a huge surge compared to breakeven earnings a year ago.

 

 

Revenues in Detail

Revenues in the first quarter were up 11% year over year on a reported basis and up 13% on an operational basis (at constant exchange rate or CER) to $1.964 billion. The figure edged past the company’s guidance of $1.89–$1.94 billion and also exceeded the Zacks Consensus Estimate of $1.912 billion.

Organic revenue growth in the first quarter (excluding the impact of changes in foreign currency exchange rates and sales from the acquisitions of the American Medical Systems (AMS) male urology portfolio in the year-ago quarter) was 8% year over year.

Geographically, in the first quarter, the company achieved 14% growth in the U.S. (7% organic), 11% growth in Europe (6%), 15% in the Asia, Middle East and Africa (AMEA) region (14%) and 23% in the emerging markets (21%), 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 $548 million (up 13% year over year at CER) and $242 million (up 14%), respectively, during the first quarter. Foreign currency headwinds impacted the quarter’s sales in each of these two sub-segments by 2%.

The second largest contributor to Boston Scientific’s top line was Rhythm Management, which includes Cardiac Rhythm Management (CRM) and Electrophysiology. CRM reflected a 3% year-over-year decline in sales to $433 million at CER.

Worldwide sales from pacemakers (within CRM) increased a marginal 0.8% to $122 million, while defibrillators were down 7.1% at $311 million due to a difficult foreign exchange scenario.

Electrophysiology sales, however, went up 5% year over year at CER to $59 million.

Other segments like Endoscopy, Urology and Pelvic Health and Neuromodulation (coming under the MedSurg broader group) recorded sales of $333 million (up 11% at CER), $228 million (up 87%) and $121 million (up 8%), respectively.

Margins

Gross margin went up 24 basis points (bps) year over year to 71%. Adjusted operating margin expanded 172 bps to 22.7% in the quarter. During the reported quarter, selling, general and administrative expenses improved 7.2% to $716 million, while research and development expenses increased 9.4% to $210 million. Royalty expense went up 11.8% to $19 million.

Balance Sheet

Boston Scientific exited the first quarter of 2016 with cash and cash equivalents of $338 million, up from $319 million at the end of 2015. At the end of the first quarter, the company had total long-term debt of $5.68 billion, unchanged from 2015 end.

Guidance

Boston Scientific has provided its second-quarter 2016 guidance with an update to its earlier provided full-year 2016 forecast. The company raised its outlook for 2016 revenues to the range of $8.075–$8.225 billion (annualized growth of 8% to 10% on a reported basis and growth of 9% to 11% on an operational basis) from the earlier provided band of $7.900–$8.100 billion. The current Zacks Consensus Estimate for revenues is $8.01 billion, falling below the guidance range.

Adjusted EPS guidance for 2016 has also been raised to the range of $1.06 to $1.10 from the earlier projection of $1.03 to $1.07. The Zacks Consensus Estimate of $1.05 is near to the lower end of the guidance range.

For the second quarter of 2016, adjusted earnings are expected in the band of 25–27 cents per share on revenues of $2.01–$2.06 billion. The Zacks Consensus Estimate for EPS stands at 26 cents, while that for revenues is $2.007 billion.

Our Take

Despite challenging economic conditions, a competitive environment and severe currency headwinds, Boston Scientific managed to post a better-than-expected second-quarter 2016, with respect to both earnings and revenues. While severe foreign exchange headwinds continue 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 geographies in the first quarter. Moreover, we are also encouraged with the company gaining a number of approvals for its products, both in the domestic market and outside.

Among recent launches, ones worth mentioning are the FDA approval for the ImageReady MR-Conditional Pacing System, CE Mark for the new EMBLEM MRI Subcutaneous Implantable Defibrillator (S-ICD) System and MR-conditional labeling for all previously implanted EMBLEM S-ICD Systems.

Zacks Rank

Currently, Boston Scientific holds a Zacks Rank #2 (Buy). Some other well-ranked Medical Product stocks are Cardiovascular Systems Inc. CSII, St. Jude Medical Inc. STJ and NuVasive, Inc. NUVA, all with a Zacks Rank #2.

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