Devices & Diagnostics

Boston Scientific’s gloomy forecast unsettles Wall Street

Boston Scientific tried some straight talk with investors in its recent earnings report. After calling 2011 a “difficult but necessary transition year” the company’s stock dropped to a two-month low of $6.80.

Maybe the weather got the best of Boston Scientific Corp. (NSYE:BSX) CEO Ray Elliott, because his forecast for 2011 is as gloomy as the skies above New England.

On a conference call with investors this morning to discuss the company’s 2010 earnings, the CEO of the Natick, Mass.-based medical device monolith described the coming year as a “difficult but necessary transition year that will set the table for 2012.”

Boston Scientific posted nearly $8 billion in sales last year, but was still unable to swing a profit in 2011. Elliot, BSX’s handpicked turnaround artist, added that the hard times are just part of setting a listing ship back on course.

“Somewhere along the way you have to bite the bullet and do the right stuff,” he said.

Initial reactions on Wall Street show that investors don’t seem so inclined to take a bite, as BSX shares plunged to a two-month low of as of $6.80 by about mid-day today, 5 percent below its opening price. Earlier in the day shares had dropped to $6.70.

BSX, which released its earnings after market close Tuesday, said it had reversed a $1.2 billion loss it posted during Q4 2009, reporting profits of $349 million, or 15 cents per diluted share, on sales of a little more than $2 billion during the three months ended Dec. 31, 2010. The picture was a little more grim for the full year, as BSX posted a $656 million loss, or 70 cents pre diluted EPS, on $7.8 billion in sales (still a 26 percent improvement over the $894 million loss on $8.1 billion in sales it posted in 2009).

Elliot, who took the helm in July 2009 from former CEO James Tobin, said for the tough transition year is due to several factors:

  1. BSX faces significant price erosion in its core stent business, as well as unstable procedure volume (a condition that is hurting the entire cardiovascular sector).
  2. The moves the company made to bolster its product line with four acquisitions wont bear any fruit until 2012. Company officials have said that the moves could produce up to 150 new products for the company, which will presumably boost the top line next year.
  3. Finally, the company will lose a quarter-billion dollars in sales right away from its $1.5 billion divestiture of its neurovascular business to Stryker Corp. (NYSE:SYK).

Despite the rocky news, some analysts saw a silver lining. Rick Wise of Leerink Swann called the company’s 2011 outlook “possibly conservative,” but added that a lot of The Street’s perception of the company’s health would be determined by the conference call. Given the performance of BSX shares today, perhaps investors decided they’d rather bite someone else’s bullet.