Boston Scientific headquarters in Natick, Massachusetts are seen Thursday, January 12, 2006. Guidant … [+]
Boston Scientific (NYSE: BSX) spent $2.9 billion on selling, general & administrative (SG&A) expense in 2016, and the figure increased to $3.6 billion in 2018, driven by the growth in sales, and launch of new products. As a percentage of revenue, SG&A declined from 39% in 2016 to 36% in 2018. This compares with a 34% figure for Medtronic and 32% for Abbott. Interestingly, all of the above three medical devices companies spend 3x to 4x the money on SG&A as compared to that on research and development (R&D). This can partly be attributed to promotional expenses incurred with regard to new product launches. Boston Scientific’s total expenses grew from around $7.5 billion in 2014 to about $8.2 billion in 2018. As a percentage of revenues, expenses have declined from 102% to 83% over the same period. Below, we take a look at the key drivers of Boston Scientific’s expenses and net margins. Look at our interactive dashboard analysis ~ BSX Expenses: How Does Boston Scientific Spend Money? ~ for more details.
Breakdown of Boston Scientific’s Total Expenses In 2018
- Total = $8.2 Bil
- COGS = $2.8 Bil
- Operating Expenses = $5.5 Bil
- Non-operating expenses = $0.1 Bil
- Income Tax Gain = $0.2 Bil
Boston Scientific’s Total Expenses Stood At $8.2 Billion In 2018, And They Could Grow To North of $10.0 Billion In 2020
- Boston Scientific’s total expenses have grown from $7.5 billion in 2014 to about $8.2 billion in 2018.
- For 2020, we expect total expenses to be around $10.5 billion, which comprises of
- 1) COGS: $3.4 Billion
- 2) Operating Expenses: $6.6 billion
- 2) Non-Operating Expense: $0.1 billion
- 3) Income Taxes: $0.4 billion
- Below, we take a look at how the company’s key expense components have trended and the key reasons for the change.
1. COGS Will Likely Increase At A Steady Pace
- Cost of Goods Sold have increased from $2.2 billion in 2014 to $2.8 billion in 2018.
- It could grow to $3.4 billion in 2020, in line with the expected revenue growth.
- As % of revenue, COGS has declined from 29.9% in 2014 to 28.6% in 2018, and it could dip slightly to 28.4% in 2020.
2. Operating Expenses Have Been Rangebound
- Operating Expenses have been in the range of $5.2 billion and $5.6 billion over the recent years.
- Operating expenses were $5.5 billion in 2014 as well as in 2018. This can be attributed to:
- $0.7 billion increase in SG&A,
- $0.3 billion increase in R&D, and
- $1.0 billion decline in other operating expenses.
SG&A Grew From $2.9 Billion In 2014 To $3.6 Billion In 2018
- The growth in SG&A was due to higher sales of the company.
- The company launched several new products over the recent years, and the company incurred charges in promoting those products.
- However, the growth in SG&A was lower than the revenue growth.
- As such, when looked as a % of revenues, SG&A has declined from 39.3% in 2014 to 36.3% in 2018.
- The figure is expected to be around 36.0% in the near term.
R&D Costs Grew From $0.8 Billion In 2014 To $1.1 Billion In 2018
- This was driven by the company’s continued investments for development of new products.
- As a % of revenues, R&D costs have largely remained around the 11% mark, and it is expected to hover around the same level in the near term.
Other Operating Expenses Have Been On A Decline
- Other operating expenses declined from $1.8 billion in 2014 to $0.8 billion in 2018.
- As a % of revenues, other operating expenses declined from 23.7% to 8.4% over the same period.
- The figure is expected to remain around the 8% mark in the near term.
- The decline in 2016 and 2017 can primarily be attributed to lower litigation related charges.
3. Boston Scientific’s Non-Operating Expenses Primarily Includes Interest & Other Expenses
- Interest & other expenses declined from $208 million in 2014 to $85 million in 2018.
- As a % of revenues, non-operating expenses declined from 2.8% to 0.9% over the same period.
- This can be attributed to gain on investments and foreign currency in 2018, when compared to losses seen in the prior years.
4. Boston Scientific’s Income Tax Expense Has Fluctuated In Recent Years
- The surge in 2017 can be attributed to TCJA and the company recorded tax of $828 million, as compared to tax gains of $170 million in taxes in the prior year.
- The figure is expected to be $388 million in 2020, reflecting an effective tax rate of 21.8%.
- The company reported losses in 2014 and 2015 on a GAAP basis.
- In 2016 and 2018, tax gains can be attributed to the impact of receipts and charges, which included intangible asset impairment charges, acquisition related charges, restructuring, and litigation related items.
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