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Boston Scientific (BSX) Q2 Earnings Beat, Margins Decline

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Boston Scientific Corporation (BSX - Free Report) posted adjusted earnings per share (EPS) of 44 cents for the second quarter of 2022, which marked a 10% rise from the year-ago figure. The figure topped the Zacks Consensus Estimate by 4.8% and also exceeded the adjusted earnings per share guidance range of 41-43 cents. The quarter’s adjustments included certain amortization expenses, acquisition/divestitures-related net charges, and restructuring charges among others.

Reported EPS in the second quarter was 17 cents, a 41.7% jump from the year-ago quarter’s 12 cents per share.

Revenues of $3.24 billion in the second quarter improved 5.4% year over year on a reported basis and 9.6% on an operational basis (at constant exchange rate or CER). Revenues grew 6.6% 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 3-6%.

Q2 Revenues in Detail

In the second quarter, revenues rose 7.4% in the United States on a reported basis (same operationally). Revenues were down 0.3% in the Europe, Middle East and Africa region (up 11.8%); up 1.9% in the Asia Pacific zone (up 11.2%); up 26.8% in Latin America and Canada (up 27.9%) and up 18.9% in emerging markets (up 26%).

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.

The company generates maximum revenues from Cardiovascular. Sales from its sub-segments, Cardiology and Peripheral Interventions were $1.52 billion (up 8.5% year over year organically) and $478 million (up 5.7%), respectively, in the second quarter.

Within MedSurg, Endoscopy generated revenues of $560 million, up 5.8% organically. Urology and Pelvic Health revenues were $450 million, reflecting organic growth of 7%. Neuromodulation within MedSurg reported $239 million in revenues, reflecting a 1% drop organically year over year.

Margins

Gross margin in the second quarter contracted 45 basis points (bps) year over year to 68.8%. There was a 6.9% rise in the cost of products sold to $1.01 billion.

Selling, general and administrative expenses rose 3.9% to $1.17 billion. Research and development expenses rose 12.4% to $335 million. Royalty expenses of $11 million declined 8.3% year over year. Adjusted operating margin contracted 53 bps to 22.3% in the reported quarter.

2022 Guidance

Boston Scientific updated full-year 2022 guidance and also provided guidance for the third quarter.

Full-year net sales growth expectation dropped to the range of 6.5-7.5% (previously 7-9%) on a reported basis. However, it improved to 8-9% (previously 6.5-8.5%) on an organic basis. The Zacks Consensus Estimate is currently pegged at $12.83 billion, indicating a 7.9% rise from the 2021 reported figure.  Full-year adjusted EPS is expected in the range of $1.74 to $1.77 ($1.74 to $1.79). The Zacks Consensus Estimate of $1.76 indicates a 7.9% improvement from the 2021 annual figure.

For the third quarter of 2022, revenue growth is projected in the range of approximately 6-8% on a reported basis (an increase of 8-10% organically). Adjusted earnings are expected in the range of 43-45 cents per share. The current Zacks Consensus Estimate for third-quarter earnings and revenues is pegged at 44 cents and $3.20 billion, respectively.

Our Take

Boston Scientific ended the second quarter of 2022 on a bullish note with adjusted earnings and revenues surpassing the Zacks Consensus Estimate.  The company registered a year-over-year improvement in organic sales, indicating a strong rebound in the legacy business from the pandemic mayhem.

Organic revenues at each of its core business segments and geographies were up in the reported quarter. The raised 2022 organic revenue guidance with strong organic growth expectations looks promising.

However, mounting costs and expenses are putting pressure on the company’s margins. The upper end of the full-year adjusted EPS guidance has been reduced increasing concerns.

Zacks Rank and Stocks to Consider

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

Some better-ranked stocks from the medical sector include Glaukos (GKOS - Free Report) , ShockWave Medical (SWAV - Free Report) and STERIS (STE - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Glaukos’ loss per share estimates have improved from $1.94 to $1.78 for 2022 in the past 60 days. GKOS has gained 5.7% over the past year.

Glaukos delivered an earnings surprise of 28.68%, on average, in the last four quarters.

Estimates for ShockWave Medical have moved north from earnings per share of $1.85 to $2.02 for 2022 in the past 60 days. SWAV has gained 22.5% over the past year.

ShockWave Medical delivered an earnings surprise of 189.99%, on average, in the last four quarters.

STERIS’ earnings per share estimates have improved from $8.70 to $8.71 for 2022 in the past 60 days. STE has improved 2.1% over the past year.

STERIS delivered an earnings surprise of 9.2%, on average, in the last four quarters.