A month has gone by since the last earnings report for Boston Scientific (BSX). Shares have added about 4.7% in that time frame, underperforming the S&P 500.
Will the recent positive 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 Q2 Sales Across Core Segments
Boston Scientific Corporation posted adjusted earnings per share of 8 cents for the second quarter of 2020, down 79.5% from the year-ago figure. The reported figure came in contrast to the Zacks Consensus Estimate of a loss of 4 cents per share.
The reported quarter’s adjustments take into consideration certain amortization expense, Acquisition/divestitures-related net charges and impairment charges among others.
Reported loss in the second quarter was 11 cents per share against year-ago earnings per share of 11 cents.
The significant bottom-line 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 second quarter plunged 23.9% year over year on a reported basis, down 23.1% on an operational basis (at constant exchange rate or CER). Revenues declined 28.7% on an organic basis (adjusted for foreign currency fluctuations and certain recent acquisitions and divestments) to $2.003 billion. The top line, however, beat the Zacks Consensus Estimate by 22.1%.
Earlier, the company was unable to provide second-quarter sales and earnings per share guidance due to the ongoing uncertainty associated with the scope and duration of the COVID-19 pandemic.
Q2 Revenues in Detail
In the second quarter, revenues declined 28.4% in the United States on a reported basis (same operationally). Revenues declined 27.2% in the Europe, Middle East and Africa region (down 25.6%); 14.8% in the Asia Pacific zone (down 14%); 49.4% in Latin America and Canada (down 43.1%) and 19.7% in the emerging markets (down 14.6%).
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 $495 million (down 28.8% year over year organically) and $340 million (down 17.4%), respectively, in the second quarter.
Boston Scientific's Rhythm and Neuro business comprises Cardiac Rhythm Management (CRM), Electrophysiology and Neuromodulation. CRM reflected a 28.8% year-over-year decline in organic sales to $351 million in the reported quarter.
Electrophysiology sales were down 38.9% year over year, organically, to $51 million. Neuromodulation sales declined 42.6% year over year on an organic basis to $122 million.
Other segments like Endoscopy plus Urology and Pelvic Health (under the MedSurg broader group) recorded sales of $348 million (down 25.5% organically) and $228 million (down 32.4%), respectively.
Gross margin in the second quarter contracted 1068 basis points (bps) year over year to 60.5%. There was a 4.4% rise in the cost of products sold to $798 million.
Selling, general and administrative expenses dropped 17.6% to $798 million while research and development expenses declined 13.6% to $242 million. Meanwhile, royalty expenses of $8 million fell 52.9% year over year. Despite that, adjusted operating margin declined 1492 bps to 8.2% in the reported quarter.
The uncertainties regarding the duration and impact of the coronavirus pandemic on the company’s overall business had earlier compelled Boston Scientific to suspend its previously-issued 2020 financial guidance. This time too, the company could not come out with any update on its full-year guidance.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Boston Scientific has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, 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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