Hologic Beats on Q4 Earnings, Revenues; FY16 View Strong

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Hologic Inc.HOLX reported fourth-quarter fiscal 2015 adjusted earnings per share (EPS) of 43 cents, up 13.2% year over year (excluding the one-time benefit of amending the company's license agreement with Roka Bioscience). Adjusted EPS also beat the Zacks Consensus Estimate by a penny and exceeded the company's guidance of 41-42 cents.

Notably, in the reported quarter, Hologic's bottom line grew at a faster rate than revenues, owing to an improvement in gross and operating margins, which was however partially offset by currency and share account headwinds.

On a reported basis, the company recorded net income of $25.2 million or 9 cents per share, reflecting year-over-year decline of 10.6% or 10%, respectively.

Hologic's fiscal 2015 adjusted EPS of $1.67 reflected a year-over-year improvement of 10.6%. The fiscal EPS figure also beat the Zacks Consensus Estimate by a penny and exceeded the company's expectation of $1.65-$1.66 per share.

Hologic Inc. (HOLX) - Earnings Surprise | FindTheCompany

Revenues in Detail

Revenues grossed $702.8 million in the quarter, up 6.4% year over year. The top line also comfortably exceeded the Zacks Consensus Estimate of $692 million and the company's expectation of $685-$695 million. At constant exchange rate (CER), revenue growth was 12.2% (excluding the one-time Roka benefit mentioned earlier).

Solid growth in all of Hologic's segments, except Diagnostics, primarily drove the year-over-year top-line improvement.

Geographically, revenues in the U.S. increased 7.7% year over year (up 12.2% excluding the Roka benefit) to $538.1 million, while international revenues increased 2.5% (up 12.5% at CER) to $164.7 million.

For the full fiscal, Hologic reported net sales of $2.705 billion, up 6.9% from fiscal 2014 and slightly ahead of the Zacks Consensus Estimate of $2.696 billion.

Segments in Detail

Sales from the Diagnostics segment (43.3% of total revenue) dropped 4.1% year over year (up 4.4% at CER) to $304.2 million in the quarter. Growth was primarily driven by global blood screening and molecular diagnostics revenues, which improved 2.3% and 6.6% respectively at CER. Revenues from cytology and perinatal products also increased 3.2% at CER.

The Breast Health segment (40.7%) improved 18.6% (up 21.6% at CER) to $286.3 million. Growth was primarily driven by strong adoption of Hologic's Geniues 3D mammography exams. Also, a 26.2% increase in sales of breast imaging products and services contributed to this growth.

The GYN Surgical business (12.4%) grew 10.6% (up 12.9% at CER) to $86.8 million, on account of 37.2% (38.6% at CER) growth in MyoSure system sales and 2.3% CER growth in NovaSure system. Revenues from Skeletal Health (accounting for the rest) improved 8.8% (up 13.7% at CER) to $25.5 million, primarily driven by continued growth of Hologic's new Horizon bone density scanner.

Operational Update

In the fourth quarter, Hologic's reported gross margin expanded 180 basis points (bps) to 54%, while adjusted gross margin improved 100 bps (excluding the Roka benefit) to 64.6%. The expansion was driven by strong domestic sales growth, favorable product mix in the Diagnostics and Breast Health divisions, and operational efficiencies, partially offset by a stronger dollar.

Hologic's adjusted operating expenses amounted to $253.7 million, up 0.3% year over year (up 9.9% excluding the Roka benefit), driven by the company's marketing investments in the Breast Health and Diagnostics divisions, as well as higher variable compensation expense. Nevertheless, adjusted operating margin expanded 400 bps (up 100 bps excluding the Roka benefit) to 17.9%.

Financial Update

Hologic exited the reported quarter with cash and cash equivalents of $492.7 million compared with $885 million at the end of the third quarter of fiscal 2015. Long-term debt (net of current portion) as on Sep 26, 2015 was $3.25 billion, compared to $3.27 billion as of Jun 27, 2015.

Operating cash flow was $232.5 million, up 76.4%. The resultant free cash flow was $201.3 million.

Guidance Raised

Hologic has provided its guidance for fiscal 2016. Currently, the company expects to deliver revenues in the range of $2.81-$2.84 billion, representing annualized growth of 3.9%-5% on reported basis and 4.4%-5.5% at CER. The current Zacks Consensus Estimate of $2.84 billion coincides with the upper level of the company provided guidance.

On the bottom-line front, Hologic expects adjusted EPS in the range of $1.80-$1.84 for fiscal 2016, which reflects annualized growth of 7.8%-10.2% on a reported basis and 8.7%-11.1% at CER. The current Zacks Consensus Estimate for adjusted EPS is pegged at $1.82, at the mid-point of the guidance range.

For first-quarter fiscal 2016, Hologic expects revenues of $680-$690 million, representing reported annualized growth of 4.2%-5.7% and 5.7%-7.2% at CER. Adjusted EPS is expected at 41-42 cents (reported growth of 5.1%-7.7% and 7.7%-10.3% at CER).

The current Zacks Consensus Estimate for revenues and EPS for the first quarter are pegged at $699 million and 44 cents, respectively.

Our Take

Hologic ended fiscal 2015 on a promising note, with both its top and bottom line exceeding the Zacks Consensus Estimate for the fiscal fourth quarter. The company's improved operating cash flow figure, which reflects improvement in net income and working capital efficiencies, also buoys optimism.

Significantly, Hologic's breast imaging product sales grew more than 20% overseas, despite the company holding low penetration rates and market share therein. Meanwhile, following weak performances across several quarters, Hologic's molecular diagnostics business, for the first time, exhibited nominal growth in the international market, in the reported quarter.

As of now, management expects further improvement in its financials going forward, as is evident from its optimistic guidance for fiscal 2016. This further bolsters our confidence in the stock.

Zacks Rank

Hologic presently carries a Zacks Rank #3 (Hold). Some well-ranked medical instrument stocks are Cesca Therapeutics Inc. KOOL , EDAP TMS SA EDAP and Masimo Corporation MASI . All the three stocks sport a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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