Laboratory Corporation of America Holdings
) reported a dismal first-quarter 2014 with adjusted earnings per
share (EPS) of $1.51, down 13.2% year over year. Results also
fell short of the Zacks Consensus Estimate of $1.60. According to
the company, unfavorable weather conditions during the quarter
dragged the bottom line by 22 cents.
On a reported basis, after including amortization (15 cents),
restructuring and other special charges (5 cents), LabCorp's net
earnings came in at $113.1 million or $1.31 per share against net
earnings of $147.2 million or $1.56 per share in the year-ago
Quarter Under Review
Revenues edged down 1% year over year to $1,430.7 million in
the first quarter, missing the Zacks Consensus Estimate of $1,445
Although the company witnessed a 2.6% increase in testing
volume (measured by requisitions), poor revenue per requisition
(down 3.3% year over year) reflects Medicare payment reductions
unfavorable test mix and the Canadian business. We note that
Medicare payment reductions and business mix also affected
) first-quarter results.
Gross margin fell a huge 359 basis points (bps) to 36.1% in
the quarter. Adjusted operating income declined 19.8% year over
year to $231.9 million. This led to an adjusted operating margin
of 16.2%, down 385 bps from the year-ago quarter. During the
quarter under review, selling, general and administrative
expenses shot up 0.6% to $284.9 million.
LabCorp exited the quarter with cash and short-term
investments of $338.9 million compared with $404.0 million at the
end of 2013. At quarter-end, the company had no borrowings
outstanding under its $1.0 billion revolving credit facility.
Operating cash flow for the quarter was $142.3 million, down from
the year-ago level of $198.2 million.
During the quarter, LabCorp repurchased 1.1 million shares for
$106.2 million and was left with $946.3 million of authorization
under the approved share repurchase plan. A consistent share
buyback program led to an 8.4% decline in the outstanding share
In spite of a dismal first quarter primarily impacted by
inclement weather, the company increased its full-year 2014 EPS
guidance to the range of $6.40 to $6.70 from the earlier provided
projectionof $6.35 to $6.65.The current Zacks Consensus Estimate
of $6.70 coincides the upper end of the revised range.
However, LabCorp still maintains its feeble revenue guidance
for 2014 at a mere 2%. The current Zacks Consensus Estimate for
revenues is pegged at $5,915 million.
In addition, operating cash flow and capital expenditures are
expected to remain in the band of $780−$820 million and $185−$205
million respectively (unchanged from the previous guidance).
LabCorp provided a dismal first quarter with both top and
bottom-line miss. Adverse weather conditions acted as the main
obstacle to the company's performance in the reported
Moreover, the current economic uncertainty continues to
adversely affect LabCorp. The challenging volume environment for
testing laboratories and utilization weaknesses stand as looming
headwinds. We are also concerned about the Medicare payment
reductions (effective Jan 2013), recently-introduced molecular
pathology codes and the implementation of sequestration.
Although the share repurchase activity provided some cushion
for the company, the bottom-line results are yet to boost
confidence. Margins also continue to remain under pressure.
Moreover, the poor outlook for 2014 implies that the industry
trend does not seem likely to improve in the near future.
However, LabCorp 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.
Further, the company's recent announcement of major upper
management churns including appointment of a new Chief Financial
Officer and changes to the board of directors instills our
confidence. This new management is expected to come up with
several new ideas to enhance the company's position amid several
The stock currently carries a Zacks Rank #3 (Hold). Some
of the better-placed Medical stocks are
Cardinal Health, Inc.
The Cooper Companies Inc.
), both carrying a Zacks Rank #2 (Buy).
CARDINAL HEALTH (CAH): Free Stock Analysis
COOPER COS (COO): Free Stock Analysis Report
QUEST DIAGNOSTC (DGX): Free Stock Analysis
LABORATORY CP (LH): Free Stock Analysis
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