Boston Scientific Beats, Ups Guidance - Analyst Blog
July 28 2011 - 7:24AM
Zacks
Boston Scientific Corporation (BSX) reported an
EPS of 10 cents during the second quarter of fiscal 2011 compared
to 6 cents in the year-ago period. However, after considering
certain adjustments (other than amortization expense), the adjusted
EPS came in at 12 cents beating the Zacks Consensus Estimate of 8
cents and the year-ago quarter’s 6 cents.
Revenues increased 2.4% year over year to $1.975 billion during
the quarter, surpassing the Zacks Consensus Estimate of $1.936
billion. However, excluding the impact of foreign currency and
sales from divested businesses, net sales remained unchanged.
Boston Scientific’s second quarter guidance was an adjusted EPS
of 7-10 cents on revenue of $1.92−$2 billion. While the company
exceeded its EPS guidance range, revenue was on the higher side.
Shares of the company were up by 5.37% in pre-market trading.
Segment contribution
Boston Scientific derives maximum contribution from
Cardiovascular, which recorded a 2% year-over-year increase in
sales to $841 million. This is really encouraging as this segment
revenue had been declining over the past few quarters. While sales
from Interventional Cardiology declined 1% to $652 million,
Peripheral Interventions increased 14% to $189 million.
Global sales of coronary stent system (within Interventional
Cardiology) at $428 million increased 1.4% driven by higher sales
of drug-eluting stents (DES, up 2.8% to $400 million), partially
offset by 15% decline in sales of bare-metal stents to $28
million.
Following the launch of Ion Paclitaxel-Eluting Platinum Chromium
stent in the US, Boston Scientific increased its market share in
the US to 50% (46% at the end of first quarter). The company
maintained its leadership position in the global DES market with
36% share.
The next biggest contributor to Boston Scientific’s top line,
Cardiac Rhythm Management (CRM), recorded a 3% increase in sales to
$544 million. Higher sales of both defibrillators (up 3.7% to $393
million) and pacemakers (up 2% to $151 million) contributed to the
overall increase.
Other segments of the company – Electrophysiology, Endoscopy,
Urology/Women’s health and Neuromodulation recorded sales of $38
million (up 2% year over year), $298 million (up 12%), $127 million
(up 6%) and $84 million (up 17%), respectively.
Restructuring initiatives
The company also announced a restructuring program to increase
productivity through zero-based budgeting and Emerging Market
Initiative. The program is expected to result in $225-$275 million
of gross annual savings exiting 2013.
About 1,200-1,400 positions will be reduced globally (through
employee attrition and targeted headcount reduction) as a part of
this program and result in $155-$210 million of pre-tax
charges.
As a part of its focus on emerging markets, Boston Scientific
plans to invest another $150 million over the next five years to
drive its growth in that region. This will include developing local
manufacturing capabilities and a training center.
Moreover, the employee base in China is expected to increase to
more than 1,200 from the current level of 200. During the reported
quarter, the company received registration approval for its Promus
Element stent in China and expects to launch it in the fourth
quarter.
Balance Sheet
Boston Scientific exited the reported quarter with cash and cash
equivalents of $154 million, down from $213 million at the end of
fiscal 2010. It is encouraging to note that the company was able to
reduce its debt level to $4.2 billion, consistent with the targeted
capital structure, from $4.9 billion at the end of December
2010.
In addition, the company announced a $1 billion share repurchase
program apart from its current buyback authorization of 37 million
shares.
Guidance
Boston Scientific also updated its guidance for fiscal 2011. The
company now expects revenue and adjusted EPS in the range of
$7.675−$7.875 billion (previous guidance of $7.6−$7.9 billion) and
41−47 cents (34-44 cents), respectively.
The Zacks Consensus Estimate for revenue and adjusted EPS stand
at $7.746 billion and 40 cents, respectively. The revenue guidance
now assumes a $201 million ($212 million) negative impact from the
divestment of Neurovascular business.
For the third quarter of fiscal 2011, Boston Scientific expects
to report adjusted EPS of 6-9 cents on revenue of $1.87−$1.97
billion. The Zacks Consensus Estimate of 8 cents in EPS and $1.9
billion revenue is at the higher end of the guidance. The recently
announced acquisitions are expected to dilute the bottom line by 1
cent per share and the divestment of Neurovascular business by the
same magnitude.
Recommendation
Boston Scientific continues to focus on strategic initiatives to
drive growth and profitability. The improvement in its core
businesses during the reported quarter is encouraging.
Moreover, the restructuring and share buyback programs are
expected to drive its bottom line further. However, the competitive
landscape is tough with the presence of players such as
Medtronic (MDT) and St Jude
Medical (STJ).
We are currently Neutral on the stock.
BOSTON SCIENTIF (BSX): Free Stock Analysis Report
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