Laboratory Corporation of America Holdings
(
LH
) reported net earnings of $120.2 million or $1.26 per share in
the fourth quarter of 2012, lower than net earnings of $135.4
million or $1.34 per share in the year-ago quarter. However,
after taking into account amortization, restructuring and other
special charges, adjusted earnings of $1.54 per share in the
reported quarter missed the year-ago mark by 1.3%.
Full year 2012 adjusted earnings per share of $6.82 sailed past
the 2011 adjusted earnings per share by 7.1%. However, the fourth
quarter and full year adjusted earnings per share were reduced by
9 cents due to inclement weather. The Zacks Consensus Estimate
for fourth quarter and full year 2012 was pegged at $1.61 and
$6.89, respectively.
Revenues increased 2.9% year over year to $1,405.3 million in the
quarter, sailing past the Zacks Consensus Estimate of $1,396
million. The low-volume-growth environment is reflected in a mere
2.8% increase in testing volume (measured by requisitions), while
revenue per requisition clambered 0.1%. Adding to LabCorp's woes,
adverse weather reduced volume growth by roughly 1%.
Full year 2012 revenues came in at $5,671.4 million, up 2.3% from
the year-ago mark. The annual revenues also surpassed the Zacks
Consensus Estimate of $5,660 million. Difficult economic scenario
continued to adversely affect LabCorp as testing volume inched up
1.7% and revenue per requisition improved marginally by 0.6% in
2012.
Gross margin declined a significant 190 basis points (bps) to
38.3% in the fourth quarter. Adjusted operating income declined
6.1% year over year to $242.2 million in the reported quarter,
resulting in an operating margin of 17.2%, lower by 170 bps from
the year-ago quarter. Lower gross margin along with a 3.1% rise
in selling, general and administrative expenses led to a drop in
operating margin.
LabCorp exited 2012 with cash and short-term investments of
$466.8 million compared with $159.3 million at the end of 2011.
LabCorp had no borrowings outstanding under the $1.0 billion
revolving credit facility. Operating cash flow in the quarter was
$254.2 million.
During the quarter, LabCorp repurchased 1.6 million shares for
$136 million and was left with $68 million of authorization under
the previously approved share repurchase plan. A consistent share
buyback program led to a 5.6% decline in the outstanding share
count and thereby had a positive effect on earnings per share.
The company also authorized a new $1 billion share buyback
program.
Outlook
LabCorp issued guidance for 2013. The company envisages revenue
growth in the range of 2%-3%. The Zacks Consensus Estimate of
$5,758 million reflects annual growth of 1.5%. It forecasts
adjusted earnings per share in the band of $6.85 and $7.15
(including an adverse impact of 35 cents due to Medicare payment
reductions).
The projection does not take into account the positive impact
of any share repurchase activity for 2013. The current Zacks
Consensus Estimate of $7.26 remains outside the guidance range.
In addition, guidance for operating cash flow and capital
expenditure lies in the range of $870 million to $900 million and
$200 million to $220 million, respectively.
Our Take
As expected, Hurricane Sandy negatively impacted the company's
performance in the fourth quarter. However, this was not the only
downside. Like its peer
Quest Diagnostics
(
DGX
), the overall soft industry trends leading to low volume growth
hurt LabCorp's top-line. Further, margins continue to remain
under pressure.
We remain cautious about the company as it witnesses testing
volume challenges and utilization weakness. Although the
company's share buyback activity might provide some cushion, we
remain watchful of the poor bottom-line guidance for 2013 which
implies that industry trends are not expected to improve in the
near-term.
Given this backdrop, the stock is currently out of favor as it
carries a Zacks Rank #4 (Sell). While we prefer to avoid LabCorp,
other medical stocks such as
ResMed
(
RMD
) and
Smith & Nephew
(
SNN
), which released results earlier this month, carry a Zacks Rank
#1 (Strong Buy) and warrant a look.
QUEST DIAGNOSTC (DGX): Free Stock Analysis
Report
LABORATORY CP (LH): Free Stock Analysis
Report
RESMED INC (RMD): Free Stock Analysis Report
SMITH & NEPHEW (SNN): Free Stock Analysis
Report
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