Laboratory Corporation of America Holdings
(
LH
) reported earnings per share ("EPS") of $1.56 in the second
quarter of fiscal 2012 compared with $1.20 in the year-ago quarter.
Restructuring charge aside, the company recorded expenses related
to acquisitions and loss on the disposal of one of its European
subsidiaries and one of its joint ventures.
Adjusted EPS came in at $1.77 (excluding amortization,
restructuring and other special charges), a penny behind the Zacks
Consensus Estimate. Earnings, however, surpassed the previous
year's adjusted EPS of $1.64.
Revenues increased 1.4% year over year to $1,423.4 million,
marginally missing the Zacks Consensus Estimate of $1,440 million.
The low-volume-growth environment is reflected in flat testing
volume (measured by requisitions) while revenue per requisition
increased 1.5%. LabCorp's peer,
Quest Diagnostics
(
DGX
), is also experiencing the brunt of economic challenges with
just-released second-quarter testing volume rising a meager 0.7%
and revenue per requisition remaining flat.
Gross margin during the quarter declined 120 basis points (bps)
to 40.7%. Adjusted operating income remained almost flat at $280.3
million in the reported quarter, resulting in an operating margin
of 19.7%. Lackluster growth compelled LabCorp to keep its expenses
under control. Consequently, the company recorded a 13.4% drop in
selling, general and administrative expenses.
LabCorp exited the quarter with cash and short-term investments
of $124.4 million compared with $159.3 million at the end of
December 2011. At quarter end LabCorp had $450.0 million of
borrowings outstanding under the $1.0 billion revolving credit
facility. Operating cash flow for the quarter was $186.3
million.
The company has been using its cash to make strategic
acquisitions as well as reward its shareholders through share
repurchases. LabCorp recently received clearance from Federal Trade
Commission with respect to its pending acquisition of
Medtox Scientific
(
MTOX
). This deal should strengthen the company's foothold in the field
of toxicology.
During the quarter, LabCorp repurchased 1.5 million shares for
$130.3 million and was left with $331.9 million of authorization
under the previously approved share repurchase plan. A consistent
share buyback program by the company led to a 4.7% decline in the
outstanding share count, thereby having a positive effect on the
bottom line.
Outlook
LabCorp narrowed its guidance for fiscal 2012. The company
expects 2−3% revenue growth (previous guidance of 2−3.5%) resulting
in adjusted EPS of $6.80−$7.00 ($6.75−$7.05) in the said fiscal. In
addition, guidance for operating cash flow and capital expenditure
remained unchanged at $950 million and $155 million,
respectively.In addition, the company expects Genzyme Genetics to
be slightly accretive to 2012 earnings.
Recommendation
We were expecting a subdued quarter from LabCorp as the adverse
macro situation has dealt a blow to industry volumes at large, a
function of reduced physician office visits. 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 expense management
and other 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 experience.
We currently have a 'Neutral' recommendation on LabCorp over the
long term. The stock retains a Zacks #3 Rank ('Hold') in the short
term.
QUEST DIAGNOSTC (DGX): Free Stock Analysis
Report
LABORATORY CP (LH): Free Stock Analysis Report
MEDTOX SCIENTIF (MTOX): Free Stock Analysis
Report
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