Boston Scientific Corp.'s market value grew by nearly $2 billion in the third quarter, beating Wall Street and industry analysts' expectations by a solid margin. The Marlborough, Mass.-based company reported $1.89 billion in revenue during the three months ending Sept. 30 -- well above its previous estimate of $1.79 billion to $1.84 billion in revenues for the quarter.
The company, however, reported a $198 million net loss for the quarter (15 cents per share); executives attributed the deficit to “litigation-related charges.” On a conference call with investors late last month, Chief Financial Officer Daniel Brennan noted the company recorded $457 million in litigation charges for the quarter related to “increases in our transvaginal surgical mesh product liability reserves.”
“Although the pace of newly filed claims has slowed over time, our known claim count is now in excess of 30,000,” he said. Although Boston Scientific has reached conditional settlements on more than 6,000 of those claims, executives are now keeping $1.56 billion in the firm's legal reserves for all litigation.
Adjusted to exclude one-time items, Boston Scientific reported an earnings per share (EPS) of 24 cents, more than the 21 cents to 23 cents it had previously predicted.
"Our third quarter performance was driven by strong sales and differentiated adjusted operating margin expansion," President/CEO Mike Mahoney said. "In this quarter, we launched several products, invested in multiple early-stage companies and began the important work of integrating the AMS male urology portfolio into Boston Scientific."
Revenues in the third quarter were up 2.3 percent year over year on a reported basis and up 9 percent on an operational basis (at constant exchange rate or CER, excluding divested business. Organic revenue growth (excluding the impact of sales from divested businesses, changes in foreign currency exchange rates and sales from the acquisitions of the interventional business of Bayer AG and the American Medical Systems (AMS) male urology portfolio in the year-ago quarter) came in at 5 percent above 2014 levels.
The company generates most of its revenues from its Cardiovascular division, which comprises the Interventional Cardiology and Peripheral Interventions segments. Third-quarter sales in these two segments were $500 million (up 7 percent year over year at CER) and $227 million (up 13 percent), respectively, but fluctuating foreign exchange rates impacted sales by 9 percent and 7 percent, respectively.
The second largest contributor to Boston Scientific’s top line was Rhythm Management, which includes Cardiac Rhythm Management (CRM) and Electrophysiology. CRM reflected flat year over year sales at $451 million at CER. Worldwide sales from pacemakers (within CRM) fell 5.3 percent to $125 million, while defibrillators slipped 6.3 percent to $348 million due tough foreign exchange rates.
Electrophysiology sales, however, jumped 13 percent year over last year to $57 million.
Other segments like Endoscopy, Urology and Pelvic Health and Neuromodulation (included in the MedSurg group) recorded sales of $331 million (up 7 percent at CER), $198 million (up 50 percent) and $124 million (up 11 percent), respectively.
Gross margin was up 125 basis points (bps) year over year at 71.5 percent. Adjusted operating margin expanded 279 bps to 20.2 percent in the quarter. Selling, general and administrative expenses fell 1.6 percent to $729 million while research and development expenses increased 4.2 percent to $221 million. Royalty expense declined 19 percent to $17 million.
Boston Scientific exited the third quarter with cash and cash equivalents of $350 million, down from $903 million at the second quarter of 2015. At the end of Q2, the company had total long-term debt of $5.86 billion, a slight increase from the second quarter level of $5.11 billion.
Buoyed by better-than-expected third quarter results, Boston Scientific increased its full year 2015 revenue guidance. The company now projects 2015 revenues in the range of $7.47 billion to $7.51 billion as opposed to the earlier forecast of $7.27 billion to $7.37 billion (annualized growth of 1 percent to 2 percent on a reported basis and growth of 8 percent on an operational basis).
The company also has raised the lower-end of its 2015 adjusted EPS to 90–92 cents from 88–92 cents.
For the fourth quarter of 2015, adjusted earnings are expected in the band of 23–25 cents per share on revenues of $1.97 billion to $2.01 billion.
However, considering amortized expense adjustments, the quarter’s adjusted EPS came in at 24 cents, 20% up from the year-ago adjusted number and 2 cents ahead of the Zacks Consensus Estimate. The figure also steered ahead of the company's adjusted EPS guidance range of 21–23 cents.
Without these adjustments, the company reported net loss of $198 million or loss of 15 cents a share in the quarter, significantly down from the year-ago net income of $43 million or EPS of 3 cents, respectively.
- See more at: http://www.zacks.com/stock/news/195554/boston-scientific-bsx-beats-on-q3-earnings-15-view-up#sthash.9bSD2hSh.dpufHowever, considering amortized expense adjustments, the quarter’s adjusted EPS came in at 24 cents, 20% up from the year-ago adjusted number and 2 cents ahead of the Zacks Consensus Estimate. The figure also steered ahead of the company's adjusted EPS guidance range of 21–23 cents.
Without these adjustments, the company reported net loss of $198 million or loss of 15 cents a share in the quarter, significantly down from the year-ago net income of $43 million or EPS of 3 cents, respectively.
- See more at: http://www.zacks.com/stock/news/195554/boston-scientific-bsx-beats-on-q3-earnings-15-view-up#sthash.9bSD2hSh.dpufffHowever, considering amortized expense adjustments, the quarter’s adjusted EPS came in at 24 cents, 20% up from the year-ago adjusted number and 2 cents ahead of the Zacks Consensus Estimate. The figure also steered ahead of the company's adjusted EPS guidance range of 21–23 cents.
Without these adjustments, the company reported net loss of $198 million or loss of 15 cents a share in the quarter, significantly down from the year-ago net income of $43 million or EPS of 3 cents, respectively.
- See more at: http://www.zacks.com/stock/news/195554/boston-scientific-bsx-beats-on-q3-earnings-15-view-up#sthash.9bSD2hSh.dpufWithout these adjustments, the company reported net loss of $198 million or loss of 15 cents a share in the quarter, significantly down from the year-ago net income of $43 million or EPS of 3 cents, respectively.
- See more at: http://www.zacks.com/stock/news/195554/boston-scientific-bsx-beats-on-q3-earnings-15-view-up#sthash.9bSD2hSh.dpuf