Hologic
(
HOLX
) reported a loss per share of 15 cents in the second quarter of
fiscal 2012 compared with earnings per share ("EPS") of 31 cents in
the year-ago period. After taking into account certain one-time
items in both the periods, adjusted EPS came in at 33 cents, in
line with the Zacks Consensus Estimate and ahead of the year-ago
quarter's 30 cents. Among several adjustments, adjusted EPS in the
reported quarter excludes charges of $18.3 million related to the
write-off of certain assets as a result of the company's decision
to cease commercialization of Adiana.
Revenues were $471.2 million, an increase of 7.4% year over year
driven by growth across all segments. However, revenues were short
of the Zacks Consensus Estimate of $474 million and came in on the
lower end of the company's guidance of $470-$475 million.
The company decided on discontinuing Adiana because it found the
product commercially not viable. Instead Hologic preferred to focus
on its core products. The company also resolved the patent
infringement litigation with
Conceptus
(
CPTS
) by discontinuing Adiana in return for the latter forgoing the
$18.8 million jury award. In addition to Hologic granting Conceptus
a license to intellectual property related to Adiana, the two
companies have also agreed to dismiss the false patent marking case
between them.
Gen-Probe Acquisition
In a separate statement, Hologic announced that it has decided
to acquire all outstanding shares of
Gen-Probe
(
GPRO
), a player in the field of molecular diagnostics, for $82.75 per
share in cash, or a total enterprise value of approximately $3.7
billion. The offer price represents a 20% premium over Gen-Probe's
closing price on Friday. The deal will be funded through available
cash and additional financing of term loans. The company exited the
second quarter with $855 million of cash and cash equivalents.
The transaction, to be completed in the second half of calendar
2012, is expected to be accretive to Hologic's adjusted EPS by 20
cents in the first year after closure. Apart from boosting both the
top and the bottom line, the deal would yield $75 million in cost
synergies within three years. The combined company will use its
strong free cash flow to repay outstanding debt.
Segments
Hologic operates through four segments − Breast Health,
Diagnostics, GYN (Gynecology) Surgical and Skeletal Health − each
contributing a corresponding 46.4%, 32.2%, 16.4% and 5% to total
revenue during the quarter. These segments recorded robust growth
of 6.2% year over year (to $218.6 million), 9.8% ($151.8 million),
8% ($77.2 million) and 2% ($23.5 million), respectively.
The upside at the Breast Health segment was driven by a shift in
sales from Selenia to Dimensions, sales of breast biopsy products
led by Eviva and to a lesser extent an increase in the total number
of digital mammography systems sold. In addition, a 7.1% rise in
service revenue related to Hologic's increased installed base of
digital mammography systems also contributed to growth.
Growth at the Diagnostic segment was driven by higher ThinPrep
revenues and growth in sales of molecular diagnostics products.
Besides, incremental ThinPrep revenue from the TCT acquisition is
on an uptrend with $8.2 million in the reported quarter, up from
$7.3 million during the last quarter.
The increase in GYN Surgical revenues was primarily due to
higher sales from MyoSure, partially offset by lower sales of the
NovaSure system and to a lesser extent, Adiana. The increase in
Skeletal Health revenues emanated from higher sales of bone
densitometry units, partially offset by a decline in Mini C-Arm
product sales.
In the recent past, Hologic has received some significant
product approvals. These include 510k clearance for Aquilex fluid
control system, which reduces procedure and anesthesia time while
providing high quality visualization to the surgeon during
hysteroscopy procedures. The company's GYN surgical sales force is
working on its penetration in the US market.
Besides, Hologic has begun commercializing its C-View
synthesized 2D image reconstruction algorithm for 3D mammography
exams in Europe following the receipt of CE Mark approval in
November 2011. The company is gradually strengthening its presence
in China with the commercialization of Serenity digital mammography
system and Cervista HPV HR tests in the second quarter.
Guidance
Hologic provided its guidance for the third quarter of fiscal
2012. For the said quarter, the company expects to report $475−$480
million of revenues (representing annualized growth of 5−6%)
resulting in adjusted EPS of 34 cents, a penny short of the current
Zacks Consensus EPS Estimate. The current Zacks Consensus revenue
estimate stands at $482 million. For fiscal 2012, Hologic still
expects to report revenues of $1.9−$1.925 billion (growth of 6−8%)
while the adjusted EPS guidance was raised by a penny at both ends
to $1.36−$1.38.
Recommendation
Though the company reported an uninspiring second quarter, the
announcement of the Gen-Probe acquisition was significant. If the
deal goes through, the combined company will become a prominent
player in the HPV business, which has players like
Qiagen
(
QGEN
). However, an increasing debt burden along with higher interest
expense will adversely affect the bottom line. We are also
disappointed with the company's decision to discontinue the Adiana
system. The stock retains a Zacks #4 Rank ("Sell") in the short
term.
Offering a wide range of products, Hologic has become an
industry giant in the field of women's health products. The
proposed acquisition will further strengthen its position in this
field. We are also encouraged by the recent product approvals,
which should help the company in recording higher sales going
forward. Over the long term, we are Neutral on Hologic.
CONCEPTUS INC (
CPTS
): Free Stock Analysis Report
GEN-PROBE INC (
GPRO
): Free Stock Analysis Report
HOLOGIC INC (
HOLX
): Free Stock Analysis Report
QIAGEN NV (
QGEN
): Free Stock Analysis Report
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