It's certainly not the most glamorous way to increase profits year over year, but the whole "living below your means" thing is definitely working for Boston Scientific
Top-line growth just wasn't there for Boston Scientific; U.S. sales of drug-eluting stents continued to struggle, falling 25% year over year. The good news is that the market might actually be growing again, as doctors have finally realized that the stents aren't so bad after all. Procedures were up 5% in the first quarter from their low in last year's third quarter. Unfortunately, Boston Scientific now has a third competitor in Medtronic's
Bottom-line growth came primarily from workforce cuts; Boston Scientific was able to lower selling, general, & administrative costs by 10% year over year. The company also chopped its research & development costs by more than 20% -- rarely a good move for the long-term health of a medical device company. However, management claims that it's just killing projects with a lower likelihood of success, and that the cuts won't affect its long-term profitable sales growth. Of course, that response makes me wonder why the company pursued these dead-end projects in the first place.
The second half of the year should be lively in the drug-eluting stent market. Abbott Labs
After a rough 2007, it looks like Boston Scientific is turning itself around from the bottom up. In my opinion, the new, leaner company should be able to wait out the recovery without eating into its bottom line.
Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Johnson & Johnson is a selection of the Income Investor newsletter. The Fool has a disclosure policy.