Boston Scientific Expects Big Sales Loss

Boston Scientific's 2010 earnings guidance indicates that its recent defibrillator recall will result in a bigger market share loss than previously estimated.
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(Boston Scientific story updated for trading activity)

NATICK, Mass. (

TheStreet

) -- Boston Scientific reported a big first quarter loss after the market closed on Monday and made a downward revision to its revenue and earnings guidance for 2010. Maybe most significantly, Boston Scientific expects a bigger sales drop as a result of a recent recall than the Street had been anticipating.

Of course, declines in share price are nothing new for Boston Scientific, as its shares fell below what many analyst already thought was a floor value earlier in 2010 after

Boston Scientific had to pull a defibrillator from the market.

The first quarter earnings report from Boston Scientific was the first chance for the Street and investors to get a look at the

damage done to Boston Scientific's financial status as a result of the lost sales during the month that the defibrillator was off the market.

On Tuesday morning in the pre-market, Boston Scientific shares had dipped below the $7 mark that some analysts had thought before the defibrillator recall represented a low for the medical device company. Boston Scientific shares closed below $7 several times in March and April.

Is this the floor level from which Boston Scientific's turnaround finally takes off?

Boston Scientific shares had fallen by more than 4% in the pre-market, but after the market open and the medical device company's earnings conference call, Boston Scientific shares were up 1% in trading and back above the $7 low water mark.

Wells Fargo Securities analyst Larry Biegelsen wrote in a flash note that excluding the defibrillator recall, which Wells Fargo estimated cost Boston Scientific $64 million in sales in the first quarter, the medical device company's earnings per share would have been 18 cents, above the company's guidance.

However, Wells Fargo Securities estimates that Boston Scientific lost $100 million in sales related to the recall, through mid-April, and that the latest guidance from BSX implies it will lose $400 million in additional sales through the end of 2010, or 13% of the U.S. defibrillator market.

The Wells Fargo analyst's price target for Boston Scientific remains between $7 and $8.

The BSX estimate of a total of $500 million in 2010 sales lost due to the recall is a much bigger drop than Wells Fargo's estimate of $273 million in lost sales. The Wells Fargo analyst wrote that the Boston Scientific guidance "implies major share loss."

Boston Scientific reported a first-quarter net loss of just under $1.6 billion, or a loss of $1.05 a share, including special charges related to the defibrillator recall.

First-quarter sales fell to just under $2 billion, from just over $2 billion in the year-ago period. Revenue was $39 million below the Street consensus.

Sales of heart-rhythm management devices, including implantable cardioverter defibrillators, or ICDs, dropped 8.7% worldwide, as U.S. sales were down 17% but sales abroad increased 9.8%. Boston Scientific's U.S. defibrillator sales fell 21% to $312 million in the first quarter. U.S. defibrillator sales declined 12% to $390 million, but international sales by grew 9% to $144 million, mitigating some of the damage from the U.S. recall.

The first quarter results included a charge of over $1.8 billion, or $1.21 a share related to the defibrillator recall. The first quarter 2009 results had included a charge of $302 million.

>> Who Owns Boston Scientific?: John Paulson

Excluding the special charges, Boston Scientific reported earnings of 16 cents per share in the first quarter -- two cents better than the Street consensus. The company had guided to 13 cents to 17 cents per share in February, with a slightly higher revenue estimate than actual revenue.

Boston Scientific expects second-quarter earnings of 6 cents to 10 cents per share, on sales of $1.8 billion to $1.9 billion. The Street was looking for 8 cents earnings per share and $2 billion in revenues.

Boston Scientific is now estimating earnings of 50 cents to 60 cents a share for 2010, on revenue of $7.6 billion to $8 billion. The new estimate is down from the 62 cents to 72 cents earnings per share estimated by Boston Scientific in February, based on projected sales of $8.1 billion to $8.5 billion.

Boston Scientific competitors

St. Jude Medical

(STJ)

and

Medtronic

(MDT) - Get Report

are expected to be the main beneficiaries of Boston Scientific's lost defibrillator market share.

Last week, St. Jude Medical reported first-quarter profit growth of 19%, partially driven by increased defibrillator sales. Medtronic reports after the market close on May 24.

Boston Scientific's outlook for the defibrillator market was also at odds with recent earnings comments from St. Jude, which said that the ICD market was stable. BSX said in its earnings that it expects slower growth in the ICD market.

-- Reported by Eric Rosenbaum in New York.

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