It just figures. For quite possibly the first time in my professional life, I have something nice to say about Boston Scientific (NYSE:BSX) -- and then it goes and posts a disappointing quarter and disappointing guidance. Let that be a lesson for us all -- a well-guarded skepticism can be an investor's best friend.
Results for the company's third quarter missed average estimates for both revenue and earnings per share. Reported revenue grew 2% for the quarter (half of that from foreign exchange), with stent sales down 8%. Boston Scientific reported a net loss of $269 million, but a large charge related to a legal settlement was primarily responsible. Backing out the charge, earnings were $347 million, or $0.42 per share -- below last year's $404 million and $0.47 per share.
The good news, bad news here is that the culprit is really easy to identify. Domestic stent sales dropped 20% as the company lost some share to Johnson & Johnson (NYSE:JNJ). In addition, the total market didn't grow quite as much as management had anticipated. The picture was brighter overseas, though, where business grew 16% and the newly launched Liberte drug-coated stent is seemingly getting good initial acceptance.
The single biggest question for Boston Scientific and its investors is exactly the same as it's been for a little while now. Can this company use the success of the drug-coated stent to build a more sustainable business for the future? After all, the stent market isn't going to get easier. I'll concede that Boston Scientific may have the best stent (good news for partner Angiotech Pharmaceuticals (NASDAQ:ANPI), as well), but J&J's isn't just scrap metal, and it's probable that eventual market entrants Medtronic (NYSE:MDT) and Abbott (NYSE:ABT) will take some share for themselves in the years to come.
Now, this notion isn't lost on Boston Scientific and they have made several acquisitions of promising technologies over the years. I don't think any of them will surpass stents on their own, and that's okay. But I would like to see drug-coated stent revenue fall to less than two-thirds of total revenue. After all, we all know the risks of one-product stories.
All in all, I don't want to make too big a deal about this quarter's performance and next quarter's guidance. The company is in a transitional period and that's at least part of why the stock is down where it is. The question for investors is whether this proves to be the pause that refreshes or the pause that depresses.
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Fool contributor Stephen Simpson owns shares of Johnson & Johnson. The Fool has a strict disclosure policy.
