Boston Scientific ($BSX) disclosed plans to slash between 1,100 and 1,500 jobs beginning in the fourth quarter, even as the Massachusetts medical device giant's 2013 third quarter numbers reflected generally positive results. Previous restructuring moves hit in a much different climate, with a backdrop of plunging or sluggish revenue and struggles under heavy debt.
This time, the job cuts are hitting in the context of Boston Scientific trying to accelerate an improved performance. Third quarter sales for the company hit $1.7 billion, flat compared to the 2012 second quarter. Boston Scientific lost $5 million, but that is a drop in the bucket compared to the $664 million net loss generated over the same period last year. While sales dipped again for interventional cardiology and declined in electrophysiology, they grew in every other sector, including a 32% sales hike in neuromodulation.
Michael Mahoney, Boston Scientific's president and CEO, said in a statement that the financial numbers reflected continued global momentum and "strong overall results."
As far as the reorganization and job cuts, he spoke briefly about the move during Boston Scientific's Q3 conference call, framing the action as something that will help propel Boston Scientific's ongoing "strategic growth initiative," with money saved redirected, in part, toward investment into more product development.
"This restructuring plan is very consistent with the strategic plan and investor guidance we have already provided," Mahoney said during the Q&A portion of the call. He added that part of that long-term plan is focus on "funding the journey," which includes a push to boost operating margins from 19% to 25%.
"Part of that is plant network optimization," Mahoney said, noting the company has continued its look "to see how we lead out operations and reduce overhead."
Boston Scientific initially disclosed the job cuts in a regulatory filing made in advance of its third quarter earnings release. Executives discussed few details, but the company said it will make the cuts beginning in Q4 through both employee attrition and "targeted headcount reductions" as part of an ongoing restructuring program for 2014 that the company's board approved on Oct. 22. The goal will be to reduce pretax operating expenses by $150 million to $200 million by the end of 2015, according to the filing, and some of the savings will be redirected toward "strategic growth initiatives."
Boston Scientific said its latest restructuring will result in pretax charges of between $175 million and $225 million.
As far as Q3 goes, results are generally trending better. Among the highlights: Boston Scientific's endoscopy and women's health division grew sales 4% and 5%, respectively. Cardiac rhythm management sales grew 1%, the first upward trend in quite some time, reflecting an apparent turnaround in a signature division that includes defibrillators, pacemakers and related products.
"We're really encouraged by the improved performance of our CRM business," Mahoney noted during the company's earnings conference call.
Some of those gains have come from acquisitions, new products and an accelerated global expansion in emerging markets such as Brazil, Russia, India and China.
Boston Scientific said it delivered adjusted earnings per share of 17 cents during Q3, above the guidance range of 14 cents to 16 cents. For the year, the company predicts sales will hit between $7 billion and $7.1 billion, with losses hitting between 13 cents to 9 cents per share, affected by one time charges relating to acquisitions, restructuring, litigation and debt refinancing.
Beyond layoffs and Q3 numbers, Boston Scientific also disclosed that Jeffrey Capello, executive vice president and chief financial officer, will leave the job as of Jan. 1, 2014, though he'll remain as a special advisor until mid-may 2014. Daniel Brennan, the company's senior vice president and corporate controller, will replace him. Capello is looking for a broader management role outside of the company. He's credited with helping to steer Boston Scientific through five years of financial struggle and reorganization.
Recently, the company hit another milestone in that regard, agreeing to pay $30 million to settle the last two federal claims involving two recalled defibrillators, a legacy of its $27.5 billion buyout of Guidant several years back.
Investors have driven Boston Scientific's stock price up steadily this year as the company has finally begun to make progress.The company's stock closed at $12.29 on Oct. 23, its highest level in years. But that number dipped to $11.93 in pre-market trading in the wake of its restructuring announcement.
- here's the regulatory filing
- check out The Wall Street Journal's take (sub. req.)
- here's the Jeffrey Capello release
- and the Q3 details
Editor's note: This story has been updated to include details from Boston Scientific's 2013 third quarter, comments from CEO Michael Mahoney, and news about CFO Jeffrey Capello's impending departure.