Laboratory Corporation of America Holdings
) reported third-quarter 2013 adjusted earnings per share of
$1.80. The results were a penny ahead of the Zacks Consensus
Estimate and up 2.3% year over year.
On a reported basis, after including amortization (14 cents),
restructuring and other special charges (3 cents), LabCorp's net
earnings came in at $148.3 million or $1.63 per share in the
third quarter of 2013 against net earnings of $148.0 million or
$1.53 per share in the year-ago quarter.
Quarter Under Review
Revenues improved 3.0% year over year to $1,462.2 million in
the third quarter, surpassing the Zacks Consensus Estimate of
$1,451 million. Although the company witnessed a 5.1% increase in
testing volume (measured by requisitions), poor revenue per
requisition (down 1.9% year over year) reflects government
payment reductions and payment issues related to molecular
pathology codes. We note that lower healthcare utilization and
Medicare payment reductions also affected LabCorp's peer
) third-quarter results.
Gross margin declined 173 basis points (bps) to 37.5% in the
quarter. Adjusted operating income declined 0.8% year over year
to $268.6 million in the reported quarter. This led to an
adjusted operating margin of 18.4%, down 72 bps from the year-ago
quarter. During the quarter under review, selling, general and
administrative expenses dropped 2.1% to $279 million.
LabCorp exited the third quarter with cash and short-term
investments of $174.1 million, compared with $466.8 million at
the end of 2012. The company had $372 million borrowings
outstanding under the $1.0 billion revolving credit facility.
Year-to-date operating cash flow was $570.0 million, down from
the year-ago level of $587.2 million.
During the quarter, LabCorp repurchased 2.9 million shares for
$288 million and was left with $304.1 million of authorization
under the approved share repurchase plan. The Board also
authorized an additional $1 billion share repurchase program.A
consistent share buybackprogram led to a 6.1% decline in the
outstanding share count and thereby had a positive effect on
earnings per share.
LabCorp tightened its revenue guidance for 2013. The company
currently expects revenue growth of 3% compared to the earlier
range of 2% to 3%. The Zacks Consensus Estimate of $5,792 million
remains almost in line with the guidance.
The company trimmed its guidance for adjusted earnings per
share to $6.95−$7.05 (including an adverse impact of 35 cents due
to Medicare payment reductions) from the earlier range of
$6.90−$7.10.The projection does not take into account the
positive impact of any share repurchase activity for 2013. The
current Zacks Consensus Estimate for earnings per share of $7.04
is at the higher end of the guidance range.
In addition, guidance for operating cash flow and capital
expenditure lies in the range of $825 to $850 million (unchanged)
and $210 million (from earlier $200−$220 million), respectively.
The capital expenditure guidance is higher than the historic
levels due to near-term investments in facility consolidation and
replacement of a major testing platform.
Although the third-quarter results topped the Zacks Consensus
Estimate on both counts, the challenging volume environment for
testing laboratories and utilization weaknesses pose as looming
headwinds. Moreover, we are concerned about the Medicare payment
reductions, recent-introduced molecular pathology codes and
implementation of sequestration. Although the share repurchase
activity provided some cushion for the company, the bottom-line
results failed to boost confidence during the quarter.
Despite near-term challenges from reimbursement issues, the
company is working on portfolio expansion to drive its top line.
The company is focusing more on the high-margin esoteric testing
business, which is expected to contribute 45% of total sales in
the next 3-5 years. The company's long-term alliance with
Bristol-Myers Squibb Co.
) is also anticipated to be another material upside.
In light of these facts and the market overview, we remain on
the sidelines for LabCorp. Accordingly, the stock carries a Zacks
Rank #3 (Hold).
Another healthcare stock,
), carrying a Zacks Rank #1 (Strong Buy) is also worth
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