Boston Scientific (BSX)
Q2 2012 Earnings Call
July 26, 2012 8:00 am ET
William H. Kucheman - Chief Executive Officer, Director and Member of Finance Committee
Jeffrey D. Capello - Chief Financial Officer and Executive Vice President
Michael F. Mahoney - President
Glenn J. Novarro - RBC Capital Markets, LLC, Research Division
James Francescone - Morgan Stanley, Research Division
Michael N. Weinstein - JP Morgan Chase & Co, Research Division
Bruce M. Nudell - Crédit Suisse AG, Research Division
Kristen M. Stewart - Deutsche Bank AG, Research Division
Daniel Sollof - Barclays Capital, Research Division
Kevin Strange - Wells Fargo Securities, LLC, Research Division
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Ladies and gentlemen, thank you for standing by. Welcome to the Boston Scientific Q2 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to our host, Mr. Sean Wirtjes. Please go ahead.
Thank you, Linda. Good morning, everyone, and thanks for joining us. With me on today's call are Hank Kucheman, Chief Executive Officer; and Jeff Capello, Executive Vice President and Chief Financial Officer.
We issued a press release earlier this morning announcing our Q2 2012 results, which included key financials and reconciliations of the non-GAAP financial measures used in the release. We posted a copy of that press release, as well as reconciliations of the non-GAAP financial measures used in today's conference call to the comparable GAAP measures and other supporting schedules to the Investor Relations section of our website under the heading Financial Information.
The duration of this morning's call will be approximately 1 hour. Hank will begin our prepared remarks with an update on our business progress and his perspectives on the quarter. Jeff will then review our Q2 financial results and business performance, as well as Q3 and updated full year 2012 guidance. We'll then open up the call up to questions.
During today's Q&A session, Hank and Jeff will be joined by our President, Mike Mahoney; as well our Chief Medical Officers Dr. Dawkins and Dr. Stein.
Before we begin, I'd like to remind everyone that this call contains forward-looking statements within the meaning of federal securities laws, which may be identified by words like anticipate, expect, project, believe, plan, estimate, intend, should and similar words. These forward-looking statements include, among other things, statements regarding our growth; market share; our products and the markets for them; product pipeline; new product approval, launches and performance; procedural volumes and pricing trends; clinical trials; cost savings and growth opportunities; investments in emerging markets and business development opportunities; the timing and volume of share repurchases; free cash flow and its uses; the impact of foreign exchange rates; our future financial performance, including sales, margins, earnings and losses and other guidance for the third quarter and full year 2012; impairments of our goodwill and other assets; and future tax rates, R&D spending and other expenses.
Actual results may differ materially from those discussed or implied in these forward-looking statements. Factors that may cause such differences include those described in the Risk Factors section of our most recent 10-K and 10-Q filed with the SEC. These statements speak only as of the date hereof, and we disclaim any intention or obligation to update them.
At this point, I'll turn it over to Hank for his comments. Hank?
William H. Kucheman
Thank you, Sean. And good morning, everyone, and thanks for joining us. Let me begin today with some comments on our second quarter performance.
Our second quarter revenue of $1.828 billion was down 7% on a reported basis and down 4% on constant currency and excluding the Neurovascular divestiture. There's no doubt that this was a tough quarter from a top line perspective. A challenging economic and competitive environment, coupled with disciplined results in our largest businesses, as well as a larger-than-expected headwind from foreign currency, led us to come in below the end of our 2Q sales guidance range.
Despite this result, we remain focused on returning to top line growth in the near term and building on that over time. I'll outline the reasons for why we believe that could be our case here in a minute.
On an adjusted basis, our earnings performance was a positive in the quarter, as we delivered adjusted EPS of $0.17, driven primarily by continued gross margin improvement and cost control. This was above Street consensus and at the high end of our guidance range of $0.14 to $0.17 despite the revenue shortfall in the quarter.
During the quarter, we recorded an estimated $3.4 billion goodwill impairment charge relating to our EMEA reporting unit. This charge was primarily driven by the slightly lower projected long-term growth rates due to macroeconomic factors and our performance in the European market. To be clear, we still believe our revenues in EMEA will grow in the future, just at a slightly lower rate than we had previously projected. Jeff will cover this event in more detail later in his comments.
Operating cash flow was very strong at $407 million. We used a portion of our cash flow to make the upfront payment for the Cameron acquisition and a portion to the buy back another 18 million shares of stock in the quarter. We believe our stock price is undervalued, and we expect to continue repurchasing shares as part of our balanced capital allocation strategy in coming quarters.
From a business standpoint -- from a performance standpoint, another significant positive in 2Q was a continued, and in some cases, increased, constant currency growth we saw in several of our businesses. Our PI, Endoscopy and Urology businesses delivered mid- to high-single digit growth in the quarter. Even more impressive was the performance of our Neuromod business, which grew 10% compared to 2Q last year. And in the emerging markets of China and India, we also grew at above-market rates, with an increase of over 40% on a combined basis.
In total, 7 of our 12 businesses grew greater than market. We expect to see continued above-market growth from these businesses in regions in the future, which is a key element of our expected path back to top line growth for the company.