It has been about a month since the last earnings report for Boston Scientific (BSX). Shares have added about 5.6% 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 its most recent earnings report in order to get a better handle on the important drivers.
Boston Scientific Q3 Earnings Top Estimates, Operating Margin Grows
Boston Scientific posted adjusted earnings per share (EPS) of 43 cents for the third quarter of 2022, which marked a 4.9% rise from the year-ago figure. The figure missed the Zacks Consensus Estimate by a penny. The reported figure matches the lower end of the adjusted earnings per share guidance range of 43-45 cents. The quarter’s adjustments included certain amortization expenses, intangible asset impairment charges, acquisition/divestitures-related net charges, and restructuring charges among others.
Reported EPS in the third quarter was 12 cents, a 57.1% drop from the year-ago quarter’s 28 cents per share.
Revenues of $3.17 billion in the third quarter improved 8.1% year over year on a reported basis and 13.7% on an operational basis (at constant exchange rate or CER). Revenues grew 11.5% on an organic basis (adjusted for foreign currency fluctuations and certain recent acquisitions and divestments). The top line exceeded the Zacks Consensus Estimate by 0.9%. The quarter’s top-line performance also exceeded the company’s projection of organic revenue growth of approximately 8-10%.
Q3 Revenues in Detail
In the third quarter, revenues rose 12% in the United States on a reported basis (same operationally). Revenues were down 0.8% in the Europe, Middle East and Africa region (up 15.2%) but rose 2.8% in the Asia Pacific zone (up 15.3%). Revenues increased 20.4% in Latin America and Canada (up 24.2%) and 28.1% in emerging markets (up 40%).
Boston Scientific recently reorganized its operational structure and aggregated its core businesses, each of which generates revenues from the sale of Medical Devices, into two reportable segments, MedSurg and Cardiovascular.
The company generates maximum revenues from Cardiovascular. Sales from its sub-segments, Cardiology and Peripheral Interventions were $1.48 billion (up 12.8% year over year organically) and $479 million (up 12%), respectively, in the third quarter.
Within MedSurg, Endoscopy generated revenues of $559 million, up 10.4% organically. Urology and Pelvic Health revenues were $433 million, reflecting organic growth of 12.6%. Neuromodulation within MedSurg reported $221 million in revenues, reflecting a 3.2% rise organically year over year.
Gross margin in the third quarter contracted 19 basis points (bps) year over year to 69.1%. There was an 8.8% rise in the cost of products sold to $979 million.
Selling, general and administrative expenses rose 6.2% to $1.13 billion. Research and development expenses rose 9.4% to $339 million. Royalty expenses of $11 million declined 21.4% year over year. Adjusted operating margin expanded 47 bps to 22.4% in the reported quarter.
Boston Scientific updated full-year 2022 guidance and also provided guidance for the fourth quarter.
Full-year net sales growth expectation has been narrowed to 6.5% (previously 6.5-7.5%) on a reported basis. However, net sales growth is now expected at 9% (previously 8-9%) on an organic basis. The Zacks Consensus Estimate is currently pegged at $12.71 billion, indicating a 6.9% rise from the 2021 reported figure. The lower end of the full-year adjusted EPS was reduced to $1.71 to $1.74 ($1.74 to $1.77 expected previously). The Zacks Consensus Estimate of $1.76 remains above the guided range.
For the fourth quarter of 2022, revenue growth is projected in the range of approximately 2-4% on a reported basis (an increase of 7-9% organically). Adjusted earnings are expected in the range of 45-48 cents per share. The current Zacks Consensus Estimate for fourth-quarter earnings and revenues is pegged at 48 cents and $3.31 billion, respectively.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Boston Scientific has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Boston Scientific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Boston Scientific is part of the Zacks Medical - Products industry. Over the past month, Royal Philips (PHG), a stock from the same industry, has gained 12.4%. The company reported its results for the quarter ended September 2022 more than a month ago.
Philips reported revenues of $4.34 billion in the last reported quarter, representing a year-over-year change of -11.4%. EPS of $0.25 for the same period compares with $0.47 a year ago.
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