Boston Scientific (BSX) is scheduled to release its first quarter fiscal 2011 earnings on April 20, 2011 after the market close. The company is expected to report EPS of 4 cents on revenue of $1.898 billion for the quarter, according to the Zacks Consensus Estimate.
Previous Quarter Highlights
Boston Scientific reported an EPS of 15 cents during the fourth quarter of fiscal 2010 compared to a loss of 71 cents per share in the year-ago period. However, after considering some adjustments (treating amortization expense as normal), the EPS was 12 cents, beating the Zacks Consensus Estimate of 10 cents and a penny lower than the year-ago quarter.
Revenue of $2 billion during the quarter surpassed the Zacks Consensus Estimate of $1.98 billion. However, compared to the fourth quarter of 2009, sales declined 4% on reported basis and at constant exchange rates (CER).
Boston Scientific also provided guidance for fiscal 2011. The company expects revenue and adjusted EPS in the range of $7.5−$7.9 billion and 26−36 cents, respectively. The revenue guidance assumes a $258 million negative impact from the divestment of Neurovascular business.
For the first quarter of fiscal 2011, the company expects to report adjusted EPS of $0.00-$0.03 on revenue of $1,825-$1,925 million.
Agreement of Analysts
Over the last 30 days, out of 22 analysts covering the stock, estimates for the first quarter have been lowered by 4 with only 1 moving in the opposite direction. Moreover, for fiscal 2011, 6 analysts have lowered their estimates with no upward revisions.
The primary challenge being witnessed by Boston Scientific is that, about 48% of its revenues, comprising of defibrillators, pacemakers and coronary stent system are recording lower revenues. Pricing pressures especially in the markets of CRM and DES, and increased competition were the primary issues in the recent past.
Moreover, the rate of decline in pricing in the DES business would be worse in 2011 than 2010. Pricing trends will put further downward pressure on revenue growth and profit margins in 2011 compared to 2010.
The weak economy is also impacting the elective procedures giving way to decline in procedural volumes in non-stent interventional cardiology and electrophysiology businesses. We believe that these issues have led the analysts to lower their outlook.Moreover, the recent disaster in Japan could mount some pressure on Boston Scientific’s top line as the company records about 12% of its revenues from this region.
In order to improve its bottom line, Boston Scientific has undertaken restructuring initiatives, which includes centralization of the R&D activities, realignment of international business to reduce administrative costs, investment in emerging markets, and prioritization and diversification of the product portfolio. We expect more visibility regarding these initiatives during the quarter.
Boston Scientific should provide an updated status on the ICD market during the conference call. Apart from updates regarding pricing and procedure given a gradually recovering economy, the company should provide information regarding the impact, if any, of the article published in JAMA in January 2011.
The article suggested that ICD implants in the US are overutilized, although Boston Scientific considers the article to have flaws in terms of methodology. The company’s share in the ICD market should face tough competition with the recent approval of Medtronic’s (MDT) Protecta.
Magnitude of Estimate Revisions
For the first quarter, estimates have been lowered by 6 cents over the last 90 days. For fiscal 2011 as well, estimates have dropped by 10 cents to 32 cents per share over the past 3 months.
Boston Scientific continues to focus on strategic initiatives to drive growth and profitability. In this respect, the recent divestiture of Neurovascular business has been a smart move, which enabled it to prepay a portion of the debt thereby improving capital structure. This in turn paves the way for other suitable acquisitions.
However, we continue to remain concerned with its core business where Boston is witnessing significant pricing pressure and loss of market share. Moreover, economic uncertainty is impacting procedure volume.
We currently have a Neutral recommendation on the stock.