Hologic (HOLX) Beats on Q1 Earnings, Lowers '17 Guidance

Hologic Inc.HOLX reported first-quarter fiscal 2017 adjusted earnings per share (EPS) of 52 cents, up 13% year over year. Adjusted EPS also beat the Zacks Consensus Estimate by a penny and exceeded the company's guidance of 50-51 cents.

Management believes the company's additional capital deployment efforts have led to faster EPS growth in comparison to revenues.

On a reported basis, the company recorded net income of $86.5 million or 30 cents per share, reflecting a year-over-year rise of 1.8% or 3.4%, respectively.

Revenues in Detail

Revenues grossed $734.4 million in the quarter, up 5.6% year over year. The top line also comfortably exceeded the Zacks Consensus Estimate of $724 million and the company's estimation of $720-$730 million. At constant exchange rate (CER), revenue growth was 6.3%.

Hologic, Inc. Price, Consensus and EPS Surprise

Hologic, Inc. Price, Consensus and EPS Surprise | Hologic, Inc. Quote

Barring sluggish Skeletal Health performance, solid growth across of Hologic's rest three business segments drove the upside in the top line.

Geographically, revenues in the U.S. increased 5.2% year over year to $573.6 million on the back of persistent strong recent trends. On the other hand, international revenues increased 7.2% (up 10% at CER) to $160.8 million on strong growth in blood screening, molecular diagnostics and GYN Surgical.

Segments in Detail

Sales at the Diagnostics segment (44.1% of total revenue) grew 4.7% year over year (up 5.5% at CER) to $325.4 million in the quarter. Growth was primarily driven by global molecular diagnostics and blood screening sales, which improved 8.8% and 7.4%, respectively, at CER. However, revenues from Cytology & Perinatal were modest with growth of 1.1% at CER.

Sales from the Breast Health segment (37.2%) rose 4.2% (up 4.6% at CER) to $273.3 million. Growth was primarily driven by strong domestic placements of Genius 3D mammography systems. Outside the U.S., Breast Health sales were flat.

Sales from the GYN Surgical business (15.6%) jumped 16.2% (up 17.2% at CER) to $114.8 million, on account of 32.1% growth in MyoSure system sales and 8.6% rise in NovaSure system, both at CER. Revenues from Skeletal Health (accounting for the rest) dropped 10.8% (down 10.7% at CER) to $20.9 million due to lower volumes.

Operational Update

In the fiscal first quarter, Hologic's gross margin expanded 60 basis points (bps) to 55.1%. However, adjusted gross margin remained flat year over year at 65.2% as a favorable high-margin product mix was offset by increasing international sales and negative effects of a stronger U.S. dollar.

Hologic's adjusted operating expenses amounted to $231.1 million, up 4.6% year over year on account of extra days in the fiscal calendar and timing of marketing expenses. Adjusted operating margin expanded 30 bps to 33.7%.

Financial Update

Hologic exited the quarter with cash and cash equivalents of $646 million, comparing favorably with $548.4 million reported at the end of fiscal 2016. Total long-term debt was $3.32 billion at the end of the quarter, compared with $3.34 billion at the end of fiscal 2016.

Operating cash flow in the fiscal first quarter was $169.6 million, down 1.1% from the year-ago period.

Fiscal 2017 Guidance

Hologic lowered its guidance for fiscal 2017 after including the expected impact of the divestiture of blood screening business, and a revenue headwind of more than $20 million from a stronger U.S. dollar. The company currently expects revenues in the range of $2.79-$2.82 billion from earlier guidance of $2.94-$2.98 billion. This new revenue guidance reflects negative annualized growth of 1.7-0.3%. The previous view was a gain of 3.8-5.2% on a reported basis and (0.7%)-0.7% at CER (earlier guidance: 4-5.5%). The current Zacks Consensus Estimate of $2.95 billion remains way ahead of the company's provided guidance.

Hologic has also lowered its EPS outlook for fiscal 2017. The company currently projects adjusted EPS in the range of $1.90-$1.94 ($2.12-$2.16) for fiscal 2017 reflecting annualized growth of (1.5%)-0.6% (8.5-10.6%) at CER. The current Zacks Consensus Estimate for adjusted EPS is pegged at $2.14, also exceeding the range.

For second-quarter fiscal 2017, Hologic expects revenues of $675-$685 million (down from earlier guidance of $720-$730 million), representing annualized growth of (2.6%)-1.2% (3.8-5.2%) and negative 1.7% to negative 0.3% (3.6-5.0%) at CER. Adjusted EPS is projected at 45-46 cents (50-51 cents) implying negative growth of 4.3% to negative growth of 2.1% (up 9.1-11.3%) at CER. The current Zacks Consensus Estimate for second-quarter revenues and EPS are pegged at $721.7 million and 52 cents, respectively, both ahead of the company's expectations.

Our Take

Although Hologic delivered a better-than-expected first quarter 2017, the dismal guidance for the rest of fiscal 2017 indicates gloomy scenario ahead. The blood screening divestiture is expected to mar the company's growth momentum in the upcoming period which may take time to rebound.

On an impressive note, the company's strong cash balance position also encourages us. Moreover, despite higher expenses, Hologic observed margin expansion. This improvement is because of strong domestic sales growth, favorable product mix, and operational improvement.

Zacks Rank & Other Key Picks

Hologic currently has a Zacks Rank #2 (Buy). Some other well-ranked medical stocks include Glaukos Corporation GKOS , Cardiovascular Systems CSII and Neogen Corp. NEOG . Glaukos sports a Zacks Rank #1 (Strong Buy) while Cardiovascular Systems and Neogen carry a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

Glaukos gained over 100% in the last one year in comparison to the S&P 500's gain of only 19.7%. The company has a stellar four-quarter average earnings surprise of over 100%.

Cardiovascular Systems surged over 100% in the last one year in comparison to the S&P 500. It has a four-quarter average earnings surprise of 67.8%.

Neogen gained 26.0% in the past one year, better than the S&P 500 mark. The stock has an impressive long-term earnings growth of 16.7% for the next five years compared with the industry's average of 15.2%.

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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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