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Boston Scientific (BSX) Q4 Earnings Miss, Margins Decline

Boston Scientific Corporation BSX posted adjusted earnings per share (EPS) of 23 cents for the fourth quarter of 2020, which marked a 50% plunge from the year-ago figure. The figure also lagged the Zacks Consensus Estimate by 25.8%. The reported quarter’s adjustments include certain amortization expenses, acquisition/divestitures-related net charges and net investment impairment charges among others.

Reported earnings in the fourth quarter were 10 cents per share compared with the year-ago EPS of $2.83.

The company also registered sequential decline of 37.8%.

Full-year adjusted EPS was 96 cents, reflecting a 39.2% decline from 2019. It also missed the Zacks Consensus Estimate by 8.6%.

Revenues of $2.71 billion in the fourth quarter declined 6.8% year over year on a reported basis, down 8.3% on an operational basis (at constant exchange rate or CER). Revenues declined 8% on an organic basis (adjusted for foreign currency fluctuations and certain recent acquisitions and divestments). The top line, however, managed to remain in line with the Zacks Consensus Estimate.

Boston Scientific reported revenues of $9.91 billion for full-year 2020, down 7.7% on a reported basis, 7.8% on an operational basis and 11.3% on an organic basis. The top line missed the Zacks Consensus Estimate by 0.6%.

The company noted 370 basis pointsnegative impact on organic sales growth associated with the conversion of the U.S. WATCHMAN customers to a consignment inventory model and transition to the next-generation WATCHMAN FLX Left Atrial Appendage Closure (LAAC) Device.

Q4 Revenues in Detail

In the fourth quarter, revenues declined 9.2% in the United States on a reported basis (same operationally). Revenues were down 1.1% in the Europe, Middle East and Africa region (down 5.9%);  1.1% in the Asia Pacific zone (down 5.6%); 10.5% in Latin America and Canada (down 3.2%) and 9.9% in emerging markets (down 8.9%).

Segmental Analysis

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 $585 million (down 23.4% year over year organically) and $429 million (up 4.8%), respectively, in the fourth quarter.

Boston Scientific's Rhythm and Neuro business comprises Cardiac Rhythm Management (CRM), Electrophysiology and Neuromodulation. CRM reflected a 6.4% year-over-year decline in organic sales to $451 million in the reported quarter.

Electrophysiology sales were down 1.8% year over year organically to $85 million. Neuromodulation sales declined 12% year over year on an organic basis to $232 million.

Other segments like Endoscopy plus Urology and Pelvic Health (under the MedSurg broader group) recorded sales of $515 million (up 1.5% organically) and $376 million (up 0.6%), respectively.

Margins

Gross margin in the fourth quarter contracted 763 basis points (bps) year over year to 63.1%. There was a 17.5% rise in the cost of products sold to $1 billion.

Selling, general and administrative expenses dropped 5.9% to $1.03 billion. Research and development expenses declined 7.4% to $286 million. Meanwhile, royalty expenses of $14 million fell 17.6% year over year. Despite that, adjusted operating margin declined 782 bps to 14.1% in the reported quarter.

Guidance

The company provided its first quarter and full-year 2021 guidance.

First-quarter revenue growth is projected in the range of approximately 0-6% on a reported basis and (3)-3% on an organic basis. Adjusted earnings, excluding certain charges (credits) are expected in the range of 28-34 cents per share. The current Zacks Consensus Estimate for first-quarter earnings and revenues is pegged at 35 cents and $2.71 billion, respectively.

Full-year revenue growth is expected in the range of 13-19% on a reported basis and 12-18% on an organic basis. Adjusted EPS, excluding certain charges (credits), is expected in the range of $1.50-$1.60. The current Zacks Consensus Estimate for 2021 earnings and revenues is pegged at $1.61 and $11.5 billion, respectively.

Our Take

Boston Scientific ended the year 2020 on a dismal note with lower-than-expected fourth-quarter and full-year earnings and a disappointing full-year revenue performance. Not only did earnings and revenues decline year over year but the company also registered strong sequential decline in overall financial performance.

Barring MedSurg, organic revenues at each of its core business segments and geographies were down in the reported quarter but the magnitude of this decline was lower than the third-quarter results. Despite significant reduction in operating expenses, the top-line debacle resulted in huge margin contractions in the quarter. The first-quarter and the full-year 2021 guidance also look dull.

Among major developments in the quarter, the company received FDA approval for its WaveWriter Alpha portfolio of Spinal Cord Stimulator Systems, expanded use of Vercise Genus family of Deep Brain Stimulation Systems, SYNERGY MEGATRON Bioabsorbable Polymer Stent, Ranger Drug-Coated Balloon, Eluvia Drug-Eluting Vascular Stent System, and ORISE ProKnife among others. Further, the company received Japanese Pharmaceuticals and Medical Devices Agency approval and Japanese National Health Insurance reimbursement approval for the WATCHMAN FLX LAAC device.

Zacks Rank and Stocks to Consider

Boston Scientific currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space that have already announced their quarterly results are NextGen Healthcare, Inc. NXGN, Abbott Laboratories ABT and AngioDynamics, Inc. ANGO. While AngioDynamics sports a Zacks Rank of 1 (Strong Buy), both Abbott and NextGen Healthcare carry a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank stocks here.

NextGen Healthcare reported third-quarter fiscal 2021 adjusted EPS of 26 cents, beating the Zacks Consensus Estimate by 8.3%. Revenues of $141.7 million surpassed the consensus mark by 0.6%.

Abbott reported fourth-quarter 2020 adjusted EPS of $1.45, which surpassed the Zacks Consensus Estimate by 6.6%. Fourth-quarter worldwide sales of $10.7 billion outpaced the consensus mark by 7.9%.

AngioDynamics reported second-quarter fiscal 2021 adjusted EPS of a penny against the Zacks Consensus Estimate of a loss per share of 2 cents. Revenues of $72.8 million beat the consensus mark by 8%.

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