Laboratory Corporation of America Holdings
) reported net earnings of $148 million or $1.53 per share in the
third quarter of 2012, higher than net earnings of $134.3 million
or $1.31 per share in the year-ago quarter. However, after taking
into account amortization, restructuring and other special
charges, adjusted earnings of $1.76 per share in the reported
quarter surpassed the Zacks Consensus Estimate by a couple of
cents, and was also higher than adjusted earnings of $1.61 in the
third quarter of 2011.
Difficult economic scenario continued to adversely affect
LabCorp. Revenues increased 1.1% year over year to $1,419.4
million, but were way below the Zacks Consensus Estimate of
$1,440 million. The low-volume-growth environment is reflected in
a mere 1.4% growth in testing volume (measured by requisitions),
while revenue per requisition dropped 0.3%.
) also experienced the brunt of economic challenges with
third-quarter testing volume dropping by 1.1% accompanied by a 1%
decline in revenue per requisition. Quest Diagnostics reported
its third quarter results yesterday.
Gross margin during the quarter declined 130 basis points
(bps) to 39.2%. Adjusted operating income declined 1.7% year over
year to $258.9 million in the reported quarter, resulting in an
operating margin of 18.2%, lower by 60 bps. Lower gross margin
along with a 1.3% rise in selling, general and administrative
expenses led to a drop in operating margin.
LabCorp exited the quarter with cash and short-term
investments of $466 million compared with $159.3 million at the
end of December 2011. At quarter end LabCorp had no borrowings
outstanding under the $1.0 billion revolving credit facility.
Operating cash flow for the quarter was $203.8 million.
The company has been using its cash to make strategic
acquisitions as well as reward its shareholders through share
repurchases. LabCorp in July 2012 acquired Medtox Scientific,
thereby strengthening its foothold in the field of
During the quarter, LabCorp repurchased 1.4 million shares for
$127.8 million and was left with $204 million of authorization
under the previously approved share repurchase plan. A consistent
share buyback program led to a 5.3% decline in the outstanding
share count, thereby having a positive effect on the earnings per
LabCorp updated its guidance for 2012 and expects 2.5% revenue
growth (previous guidance of 2−3% revenue growth) resulting in
adjusted earnings of $6.88−$6.93 ($6.80−$7.00) in the said
fiscal. In addition, guidance for operating cash flow and capital
expenditure were lowered to $915 million ($950 million) and $145
million ($155 million), respectively.
We were expecting a subdued quarter from LabCorp as the
adverse macroeconomic situation has dealt a blow to industry
volumes at large. We remain concerned about pricing going ahead,
which might be affected by contract renewals amidst a tough
competitive and economic scenario. We nonetheless appreciate the
company's focus on strategic initiatives to spur growth.
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. LabCorp is also paying due attention
to IT initiatives to improve physician and patient
We currently have a 'Neutral' recommendation on LabCorp over
the long term. The stock retains a Zacks #3 Rank ('Hold') in the
QUEST DIAGNOSTC (DGX): Free Stock Analysis
LABORATORY CP (LH): Free Stock Analysis
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