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Boston Scientific (BSX) Q3 Earnings Miss, Operating Margin Up

Boston Scientific Corporation BSX 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%).

Segmental Analysis

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.

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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.

Boston Scientific Corporation Price, Consensus and EPS Surprise

Boston Scientific Corporation Price, Consensus and EPS Surprise
Boston Scientific Corporation Price, Consensus and EPS Surprise

Boston Scientific Corporation price-consensus-eps-surprise-chart | Boston Scientific Corporation Quote

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.

Margins

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.

2022 Guidance

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.

Our Take

Boston Scientific third quarter of 2022 adjusted earnings missed the Zacks Consensus Estimate while revenues beat the same.  The company registered a year-over-year improvement in organic sales, indicating a strong rebound in the legacy business even amid several macroeconomic issues.

Organic revenues at each of its core business segments and geographies were up in the reported quarter. However, mounting costs and expenses put pressure on the company’s margins.

The updated 2022 guidance seems lackluster, indicating the industry-wise trend of currency headwinds and global inflationary pressure.

Zacks Rank and Stocks to Consider

Boston Scientific currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the medical sector include Chimerix CMRX, McKesson MCK and Humana HUM.

Chimerix currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

It will release third-quarter 2022 results on Nov 3. Chimerix’s earnings yield of 112.3% compares favorably with the industry’s -2.98%.

McKesson carries a Zacks Rank #2. It is scheduled to release third-quarter 2022 results on Nov 1.

McKesson’s long-term historical earnings growth rate is estimated at 14.2%. MCK’s earnings yield of 6.77% compares favorably with the industry’s 5.19%.

Humana carries a Zacks Rank #2 currently. Humana is slated to release third-quarter 2022 results on Nov 2.

Humana’s long-term historical earnings growth rate is estimated at 16.2%. HUM’s earnings yield of 5% is in line with the industry.


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