A month has gone by since the last earnings report for Boston Scientific (BSX). Shares were flat in that time frame, underperforming the S&P 500.
But investors have to be wondering, will the recent trend continue leading up to its next earnings release, or is Boston Scientific due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Boston Scientific Sees Sluggish Q1 Sales Across Core Segments
Boston Scientific posted adjusted earnings per share (EPS) of 28 cents in the first quarter of 2020, down 20% from the year-ago figure. Earnings missed the Zacks Consensus Estimate by 15.2%. Moreover, the figure lagged the company’s guided range of 37-40 cents. The adjustments take into consideration certain amortization expenseand impairment chargesamong others.
Reported EPS in the first quarter was a penny, substantially below the year-ago earnings of 30 cents per share.
The significant earnings 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 first quarter rose 2% year over year on a reported basis, up 3.2% on an operational basis (at constant exchange rate or CER). However, revenues declined 2.9% on an organic basis (adjusted for foreign currency fluctuations and certain recent acquisitions and divestments) to $2.54 billion. The top line beat the Zacks Consensus Estimate of $2.52 billion by 0.8%.
Q1 Revenues in Detail
In the first quarter, the company achieved 3.5% growth in the United States on a reported basis (same operationally). Revenues declined 1.6% decline in the Europe, Middle East and Africa region (up 1.3%); 6.4% in the Asia Pacific zone (down 4.8%); 3.1% in Latin America and Canada (up 3.6%) and 10.1% in the emerging markets (down 5.4%).
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 $633 million (down 2.7% year over year organically) and $392 million (down 2.1%), respectively, in the first quarter.
Boston Scientific's Rhythm and Neuro business comprises Cardiac Rhythm Management (CRM), Electrophysiology and Neuromodulation.CRM reflected a 9.9% year-over-year decline in organic sales to $437 million in the reported quarter.
Electrophysiology sales were down 5.2% year over year, organically, to $74 million. Neuromodulation sales declined 6.6% year over year on an organic basis to $191 million.
Other segments like Endoscopy plus Urology and Pelvic Health (under the MedSurg broader group) recorded sales of $442 million (up 1.5% organically) and $332 million (up 2.9%), respectively.
Gross margin in the first quarter contracted 241 basis points (bps) year over year to 68.3% due to a 10.4% rise in the cost of products sold.
Adjusted operating margin declined 641 bps to 17.6% in the reported quarter. Selling, general and administrative expenses increased 12.5% to $978 million while research and development expenses rose 7.1% to $300 million. Meanwhile, royalty expenses of $12 million fell 25% year over year.
The uncertainties regarding the duration and impact of the coronavirus pandemic on the company’s overall business have compelled Boston Scientific to suspend its previously-issued 2020 financial guidance.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -170% due to these changes.
At this time, Boston Scientific has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Boston Scientific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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