Boston Scientific Corporation (BSX - Analyst Report) reported adjusted earnings per share (EPS) (after considering certain one-time adjustments other than amortization expense) of 15 cents in the fourth quarter of 2014, 15.4% ahead of the year-ago adjusted number.

However, considering amortized expense adjustments, the quarter’s adjusted EPS came in at 22 cents, 4.8% ahead of both the year-ago adjusted number and the Zacks Consensus Estimate. The figure coincides with the upper end of the company's adjusted EPS guidance range of 20–22 cents.

Without these adjustments, the company reported net income of $87 million or EPS of 6 cents in the quarter, down from the year-ago net income of $108 million or EPS of 8 cents, respectively.

For full year 2014, Boston Scientific reported adjusted earnings (considering certain one-time adjustments including amortization expense) of 84 cents per share, reflecting a year-over-year improvement of 15.1%. Full year EPS also beat the Zacks Consensus Estimate by a penny and exceeded the company’s earlier projected band of 81–83 cents.

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Revenues in Detail

Revenues in the fourth quarter registered a 2.7% increase year over year (7% growth at constant exchange rate or CER, excluding divested business) at $1.887 billion. The figure, although shy of the Zacks Consensus Estimate of $1.904 billion, remained within the company’s guidance range of $1.875−$1.925 million.

For full year 2014, the company reported revenues of $7.380 billion, up 3.3% year over year (operational revenue growth of 6%) and comfortably ahead of the Zacks Consensus Estimate of $2.305 billion. The results were well within the company’s guidance of $7.370–$7.420 billion.

Segment Analysis

Boston Scientific currently has three global reportable segments comprising Cardiovascular, Rhythm Management and MedSurg.

The company generates maximum revenues from Cardiovascular, which comprises Interventional Cardiology and Peripheral Interventions. Sales in these sub-segments were $523 million (up 10% year over year at CER) and $222 million (up 10%), respectively, during the fourth quarter.

Global sales of coronary stent system (within Interventional Cardiology) were $303 million, up 5.6%. The improvement in drug-eluting stents (DES) performance that increased 6.9% to $291 million was partially offset by the poor bare-metal stents performance that plunged 20% to $12 million.

The next biggest contributor to Boston Scientific’s top line was Rhythm Management, which includes Cardiac Rhythm Management (CRM) and Electrophysiology. CRM reflected sales improvement of 3% to $468 million at CER.

Worldwide sales from pacemakers (within CRM) dropped 4.4% to $129 million, while defibrillators increased 1.8% to $339 million.

Electrophysiology sales surged 23% year over year at CER to $59 million.

Over the recent past, the company has been targeting vital product launches to revive the sales of the beleaguered Interventional Cardiology and CRM segments. The improved performance in these core segments in the reported quarter, proved beyond doubt that the measures undertaken are working effectively to counter the ongoing challenges. In the quarter, the improvement in Interventional Cardiology was driven by continued leadership of the Promus PREMIER Stent system in the U.S. and solid share gains in Japan.

Other segments like Endoscopy, Urology/Women’s Health and Neuromodulation (coming under the MedSurg broader group) recorded sales of $340 million (up 5% at CER), $140 million (up 9%) and $134 million (down 2%), respectively.

Margins

Gross margin was up 57 basis points (bps) year over year to 70.4%. Adjusted operating margin expanded 77 bps to 18.1% in the quarter. During the reported quarter, selling, general and administrative expenses increased 4% to $753 million while research and development expenses dropped 3.7% to $208 million. Royalty expense increased 4.2% to $25 million.

Balance Sheet

Boston Scientific exited the year with cash and cash equivalents of $587 million, a substantial 170.5% rise from $217 million at the end of fiscal 2013, and had long-term debt of $3.86 billion. The company generated operating cash flow of $1.269 billion in 2014.

Guidance

During the earnings call, Boston Scientific provided its full year 2015 guidance. The company expects 2015 adjusted EPS (considering all one-time items including amortized expense) in the range of 88–92 cents. The current Zacks Consensus Estimate stands at 90 cents, the midpoint of the guidance range. Estimated revenues, on the other hand, are expected to remain in the range of $7.300–$7.500 billion (growth of 3% to 6% on an operational basis). The current Zacks Consensus Estimate for revenues of $7.578 billion coincide with the company’s outlook.

For the first quarter of 2015, adjusted earnings are expected in the band of 19–21 cents per share on revenues of $1.740−$1.800 billion. The Zacks Consensus Estimate for EPS stands at 21 cents, while that for revenues is $1.831 billion.

Our Take

Amid challenging economic conditions, a competitive environment, and currency headwinds, Boston Scientific posted a mixed fourth-quarter 2014, beating our estimate on the earnings front while lagging the same with respect to revenues. However, we are impressed that barring Neuromodulation, the company has managed to post an impressive performance with balanced growth across the rest of its segments. Moreover, the guidance for 2015 also helps us to rely on the sustainability of this growth performance.

In 2014, Boston Scientific had strengthened its core businesses and invested in new technologies and global markets, which contributed to the solid results across its businesses and regions. Additionally, the company also showed an improvement in its margins and delivered double-digit adjusted EPS growth. Boston scientific is currently looking forward to year 2015 wherein it expects to introduce more innovative medical technologies and solutions.

Boston Scientific has a strong pipeline of products under development, the launch of which should further drive the top line. We are, at the same time, encouraged by the focus on emerging markets, especially India and China.

Currently, Boston Scientific retains a Zacks Rank #3 (Hold). Some of the better-ranked Medical Product stocks are Abaxis, Inc. (ABAX - Analyst Report), Cardiovascular Systems Inc. (CSII - Snapshot Report) and ICU Medical, Inc. (ICUI -Snapshot Report), all carrying a Zacks Rank #1 (Strong Buy).