Earnings Preview: Boston Scientific - Analyst Blog

Boston Scientific (BSX) is scheduled to release its third quarter fiscal 2010 earnings on October 19, 2010 after the market close. The company is expected to report EPS and revenue of 6 cents and $1.91 billion, respectively, during the quarter, according to the Zacks Consensus Estimate.

Previous Quarter Highlights

Boston Scientific reported an adjusted EPS (excluding goodwill impairment-related credits, restructuring-related charges and amortization expense) of 6 cents for the second quarter of fiscal 2010, which surpassed the Zacks Consensus Estimate of 3 cents. However, earnings were lower than the 13 cents reported in the year-ago quarter. Net sales declined 7% year over year to $1.93 billion, primarily due to the cardiac rhythm management (CRM) ship hold and product recalls in the first quarter of 2010.

Sales from the Cardiovascular group declined by 9% ($823 million) with a 13% decline in CRM sales ($527 million). However, CRM has recovered from the first quarter's product recall hangover attributable to its exceptional sales execution team.

Furthermore, Boston Scientific's Endoscopy and Women's Health businesses recorded annualized growth of 8% and 4% to $265 million and $120 million, respectively. However, sales of the Neurovascular segment declined 5% to $82 million, while Neuromodulation sales remained unchanged at $72 million.

Along with the second quarter results, Boston Scientific also updated its outlook for 2010. For fiscal 2010, the company lowered the high end of its net sales guidance range to $7.6 - $7.9 billion (from $7.6 - $8.0 billion). However, the company raised its adjusted EPS guidance range to 54 - 62 cents (from 50 – 60 cents).

For the third-quarter 2010, Boston Scientific expects net sales and adjusted EPS in the range of $1.85–$1.92 billion and 10–13 cents, respectively.

Agreement of Analysts

Over the last 30 days, none of the analysts have made any revisions to estimates. Moreover, in the fourth quarter, 1 analyst increased estimates in the last 7 days and 30 days. Moreover, Boston Scientific has witnessed a lowering of estimate by 3 analysts in the last 30 days, and 1 analyst in the last 7 days. The Zacks Consensus Estimate for the fourth quarter and fiscal 2010 is 10 cents and 31 cents, respectively.

As witnessed during the second quarter, sales from Coronary stent (accounting for 22% of total sales) declined 12.8% driven by decline in sales of both drug eluting stents (11.8%) and bare metal stents (23.3%).

Further, the pricing pressures led to a 400 basis points decline in the global drug eluting stents (DES) market share to 38% from the year-ago quarter. Concerns related to these challenges intensified during the second quarter due to the weakening Euro. In addition, the continuous mix shift from high margin Taxus to lower margin Promus poses a challenge for the company's overall market share. Thus, this quarter is crucial for the company with respect to its DES market share.

Moreover, we are concerned about the Cardiac Rhythm Management (CRM) segment that has been facing the cardiac resynchronization therapy defibrillators (CRT-Ds) and implantable cardioverter defibrillator (ICDs) ship hold issues since the first quarter. Although the resumption of CRT-Ds and ICDs sales in the second quarter helped the company to prevent erosion of its topline and market shandation, reflecting the company's disappointing third-quarter 2010 outlook.