Hologic Beats by a Penny, Sales Lag - Analyst Blog

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Hologic ( HOLX ) reported net income of $23.6 million or 9 cents per share in the third quarter of fiscal 2012 compared with $36.2 million or 14 cents per share. After taking into account certain one-time items, adjusted earnings per share ('EPS') came in at 35 cents, a penny ahead of the Zacks Consensus Estimate and beating the adjusted EPS of 32 cents in the year-ago period.

Revenues were $470.2 million, an increase of 4.2% year over year but were short of the Zacks Consensus Estimate of $477 million. Reported revenues lagged the low-end of the company's guidance range of $475-$480 million. Hologic had reported preliminary third-quarter results earlier this month.

Segments

Hologic operates through four segments − Breast Health, Diagnostics, GYN (Gynecology) Surgical and Skeletal Health − with each contributing a corresponding 45%, 34%, 16% and 5% to total revenue during the quarter. These segments recorded respective sales of $211.5 million (up 3.1% year over year), $158.7 million (up 10.6%), $77.7 million (down 2.1%) and $22.4 million (down 3.1%).

The upside at the Breast Health segment was driven by an increase in service revenues related to the growing installed base of digital mammography systems, specifically 2D and 3D Dimensions systems. While we are impressed with the step up in orders for the 3D platform, some orders could not be shipped during the reported quarter due to some additional requirements at the customer site thereby delaying installation. As a result, the backlog of orders increased at the end of the quarter on a sequential basis. Meanwhile, Hologic has reached over 45% of its goal of placing 500−700 3D systems in US within two years of launch and is on track to achieve the 60% level by the end of the current fiscal.

Growth at the Diagnostic segment was driven by higher ThinPrep revenues and sales of molecular diagnostics products. Besides, incremental ThinPrep revenue from the TCT acquisition amounted to $8.3 million in the reported quarter, up nominally from $8.2 million during the last quarter. Earlier this month, Hologic's Cervista HPV HR test received approval in the Netherlands.

The drop in GYN Surgical revenues was primarily due to lower sales of NovaSure and Adiana systems, offset by growth in MyoSure system sales that nearly tripled compared to last year. However, after adjusting for the discontinuance of Adiana, sales recorded 3% growth year over year and 4% sequentially. As a reminder, the company had decided to discontinue the product line in the last quarter as it was not found to be commercially viable and preferred to focus on its core products. We are encouraged by the focus of the sales force on NovaSure that resulted in 3% sequential growth during the quarter.

The decline in Skeletal Health revenues emanated from lower sales of bone densitometry units, partially offset by increase in Mini C-Arm product sales.

Gen-Probe Update

Hologic announced that it has received all regulatory approvals and is in the process of arranging debt financing for the acquisition of Gen-Probe ( GPRO ), a player in the field of molecular diagnostics. The transaction is expected to be closed shortly.

Guidance

Hologic provided its guidance for the fourth quarter of fiscal 2012. For the said quarter, the company expects to report $485 million of revenues (representing annualized growth of 4%) resulting in adjusted EPS of 35−36 cents, in line with the current Zacks Consensus EPS Estimate. The current Zacks Consensus revenue estimate stands at $490 million, higher than the company's outlook.

Hologic reiterated its fiscal 2012 outlook for both revenues and EPS. The company expects to report revenues of $1.9 billion representing 6% growth with adjusted EPS in a band of $1.36−$1.38.

Recommendation

Hologic witnessed a challenging third quarter with the economic uncertainties in Europe, slower sales cycles and increasing pricing pressure. Apart from margin erosion on European sales, revenues were impacted by more than $4 million because of these headwinds. We are concerned about the economic environment with barely any recovery expected in the near term.

However, the increasing acceptance of the 3D Dimensions system is a cause to cheer.  We also believe that revenues from GYN Surgical should improve in the forthcoming period with increased focus on NovaSure and MyoSure systems. Offering a wide range of products, Hologic has become an industry giant in the field of women's health.

We are also bullish about the proposed Gen-Probe acquisition, which will strengthen the company's foothold in the HPV business. This specialized niche has players like Qiagen ( QGEN ) among others. However, an increasing debt burden along with higher interest expense will continue to affect the bottom line.

We have a Neutral recommendation on Hologic. The stock retains a Zacks #3 Rank ("Hold") in the short term.


 
GEN-PROBE INC (GPRO): Free Stock Analysis Report
 
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QIAGEN NV (QGEN): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: GPRO , HOLX , QGEN

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