Boston Scientific’s stock drops on news that CFO is leaving

  • Article by: JAMES WALSH , Star Tribune
  • Updated: October 24, 2013 - 9:24 PM

Despite a solid earnings report, analysts expressed concern about Jeffrey Capello’s departure.

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Boston Scientific's third quarter results met expectations, and the company detailed plans for a restructuring.

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Boston Scientific Corp.’s shares dipped Thursday, but the recent news of job cuts wasn’t to blame.

The stock likely fell because the medical device maker announced that Chief Financial Officer Jeffrey Capello would be leaving for an opportunity elsewhere.

In a note to investors headlined “Departure Overshadowing Strong Fundamentals,” Wells Fargo & Co. analyst Larry Biegelsen wrote that Capello leaving the company “is having the greatest impact.”

The company said Capello will leave Dec. 31 to find a broader management position. Shares of Boston Scientific, which has about 5,000 employees in Minnesota, closed Thursday at $11.54, down more than 6 percent.

Capello was praised Wednesday for helping lead what is considered a continuing turnaround. That includes Boston Scientific’s quarterly earnings, announced Wednesday, of 17 cents a share, slightly above its previous guidance, and better-than-projected worldwide sales of $1.74 billion. Revenue was flat compared with the third quarter last year but up 4 percent when taking the effect of foreign currency into account. On Jan. 1, Capello will be replaced by Daniel Brennan, the company’s senior vice president and controller.

Analysts applauded the company’s cardiac rhythm management unit, where revenues of $464 million were 1 percent higher than the third quarter last year, as well as its neuromodulation division, which saw a 32 percent jump in sales to $115 million. In addition, sales increased 8 percent in its endoscopy business and 8 percent in the urology/women’s health unit, after factoring in the impact of foreign currency.

Wall Street also seemed to positively view the company’s Wednesday announcement detailing a restructuring plan that will cut 1,100 to 1,500 positions from Boston Scientific’s global workforce, with an anticipated savings of $150 million to $200 million a year by the end of 2015.

Company officials said they expect there to be little change to Boston Scientific’s net ­workforce, as it appears a good portion of the savings will be reinvested in faster-growing operations and businesses.

Analyst Joshua Jennings of Cowen said in a note: “Yesterday’s announcement of 2014 restructuring plan is viewed as a play for the long haul, slimming the company’s operating expense structure.”

Shifting of resources

Capello and Boston Scientific CEO Mike Mahoney, in a conference call with analysts Thursday, appeared to support the idea that the restructuring — in large part hitting manufacturing jobs — is geared toward shifting resources from businesses that are flat to those that are growing faster, especially in Asia.

Boston Scientific announced that Brazil, Russia, India and China have seen combined growth from last year of 29 percent. And, earlier this year, the company opened its Institute for Advancing Science and new Innovation Center in China.

“We are pleased with our strong overall results and the momentum we are building globally in a dynamic health care environment,” Mahoney said. “We accelerated our operational performance in the quarter while enhancing our ability to deliver meaningful innovation to our customers and their patients.”

He and Capello also tried to reassure investors that Brennan is ready for the challenge of keeping the company moving forward.

“I would like to thank Jeff for the significant contributions he made to Boston Scientific during the past five years,” Mahoney said. “I am confident that by promoting Dan to the critical role of CFO, there will be a seamless transition as we continue to execute against our strategic plan.”

James Walsh • 612-673-7428

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