Laboratory Corporation of America Holdings
) first-quarter 2013 adjusted earnings per share of $1.74
remained flat on a year-over-year basis but missed the Zacks
Consensus Estimate of $1.77. However, the results include an
adverse impact of 4 cents due to inclement weather.
On a reported basis, after including amortization, restructuring
and other special charges LabCorp's net earnings of $147.2
million or $1.56 per share in the first quarter of 2013 were
lower than net earnings of $161.6 million or $1.63 per share in
the year-ago quarter.
Quarter Under Review
Revenues inched up 1.2% year over year to $1,440.9 million in the
first quarter, trailing the Zacks Consensus Estimate of $1,448
million. The low volume growth environment is reflected in a mere
1.1% increase in testing volume (measured by requisitions), while
revenue per requisition clambered 0.2%. Like its peer
) first-quarter results, LabCorp's results were also affected by
overall soft industry trends.
Adding to LabCorp's woes, adverse weather reduced volume growth
by roughly 0.5% in the quarter. On a per day basis, revenues
improved 2.9% and testing volume increased 2.7% in the quarter.
Gross margin declined 80 basis points (bps) to 39.7% in the
quarter. Adjusted operating income declined 5.2% year over year
to $289.0 million in the reported quarter, resulting in an
operating margin of 20.1%, lower by 130 bps from the year-ago
quarter. Lower gross margin along with a 4.4% rise in selling,
general and administrative expenses led to a drop in operating
LabCorp exited the quarter with cash and short-term investments
of $185.8 million compared with $466.8 million at the end of
2012. The company had $30.0 million borrowings outstanding under
the $1.0 billion revolving credit facility. Operating cash flow
in the quarter was $198.2 million, up 0.6% year over year.
During the quarter, LabCorp repurchased 1.3 million shares for
$113.9 million and was left with $954.1 million of authorization
under the approved share repurchase plan. A consistent share
buyback program led to a 4.6% decline in the outstanding share
count and thereby had a positive effect on earnings per share.
LabCorp maintains its guidance for 2013. The company envisages
revenue growth in the range of 2%-3%. The Zacks Consensus
Estimate of $5,776 million reflects annual growth of 1.8%. 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
The projection does not take into account the positive impact of
any share repurchase activity for 2013. The current Zacks
Consensus Estimate of $7.15 is line with the higher end of the
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.
LabCorp posted another challenging quarter, a reflection that
challenging volume environment for testing laboratories and
utilization weaknesses are looming headwinds. Although the share
repurchase activity provided some cushion for the company, the
bottom-line results failed to boost confidence.
Nonetheless, LabCorp is continuously working on portfolio
expansion to drive top line. The company's long-term alliance
Bristol-Myers Squibb Company
) is another potential upside. While LabCorp's focus on pipeline
development is likely to yield positive results, its progress to
fuel growth has been slow.
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).
While we tread with caution for LabCorp, other healthcare stocks
), carrying a Zacks Rank #1 (Strong Buy) are worth
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