Boston Scientific's (NYSE: BSX) cost-cutting measures cost the company a lot in the fourth quarter of last year. The good news is the charges are almost over.
On a non-GAAP basis, the company posted a $0.24-per-share profit, but it was pummeled by $939 million in charges, including $365 million related to patent litigation, $208 million tied to losses on business segments it sold, and $184 million in charges to cut its workforce by 8%. The charges swung the medical-device maker into a $0.31-per-share loss for the quarter and dug a pretty deep $0.33-per-share hole for the year.
Nevertheless, revenues were up year over year, with sales of cardiac rhythm management products up 11% -- likely helped by Medtronic's (NYSE: MDT) recall. Now that it has European marketing approval for its Livian defibrillator, this segment will likely lead Boston Scientific's growth this year as well.
Drug-eluting stents, on the other hand, didn't fare too well. The company saw worldwide sales of its coronary stent systems slip 10% year over year. Fortunately, market share against Johnson & Johnson (NYSE: JNJ) has remained consistent, so the drop is mostly due to reduced use of the devices by cardiologists. With Medtronic gaining approval for its stent and Abbott Laboratories (NYSE: ABT) likely to see an approval before summer, Boston Scientific is going to have a harder time keeping stent revenues propped up.
The good news is that it gets to sell Abbott's stent under its own brand name. If its sales force can work the magic that got Boston Scientific into the No. 1 position, 2008 might be an OK year for the medical-device maker. With the cost savings from the charges about to set in, Boston Scientific is shooting for a 15%-20% increase in adjusted earnings per share.
Looking a little more long-term, the cost savings will eventually run out, and Boston Scientific is going to need to show that it can return to the substantial revenue growth it has produced in the past. Ultimately, the drug-eluting stent market will make or break Boston Scientific, and we should know by year-end how the four-way race is going.
