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LabCorp (LH) Tops on Q2 Earnings & Revenues, Narrows '18 View

Laboratory Corporation of America HoldingsLH , or LabCorp, reported second-quarter 2018 adjusted earnings per share (EPS) of $2.98, up 22.6% from the year-ago quarter. The bottom line also exceeded the Zacks Consensus Estimate by 2.1%.

On a reported basis, LabCorp's net earnings came in at $2.27 per share as compared to $1.78 in the year-ago period.

Revenues for the second quarter increased 13.4% year over year to $2.87 billion. The top line exceeded the Zacks Consensus Estimate of $2.85 billion. The year-over-year rise in revenues was owing to 10.5% growth from acquisitions, organic growth of 2.1% and a benefit of approximately 80 basis points from foreign currency translation.

Quarter Under Review

LabCorp reports under two operating segments: LabCorp Diagnostics and Covance Drug Development.

Laboratory Corporation of America Holdings Price, Consensus and EPS Surprise

Laboratory Corporation of America Holdings Price, Consensus and EPS Surprise | Laboratory Corporation of America Holdings Quote

In the reported quarter, LabCorp Diagnostics reported revenues of $1.81 billion, up 5.4% year over year, fueled by tuck-in acquisitions, organic volume (measured by requisitions) and a gain from foreign currency translation of roughly 30 basis points. This was partially offset by lower Medicare reimbursement as a result of the implementation of the Protecting Access to Medicare Act (PAMA).

The company reported a 5.8% rise in total volume (measured by requisition) and a 0.7% decline in revenue per requisition in the concerning quarter.

Covance Drug Development reported a 30.5% rise in revenues to $1.05 billion in the second quarter. This upside was primarily on the back of acquisitions, organic growth and the foreign currency translation benefit of nearly 180 basis points.

Gross margin deteriorated 164 bps to 29.1% in the reported quarter. Adjusted operating income was up 4.7% year over year to $439.9 million. However, adjusted operating margin contracted 128 bps from the year-ago quarter to 15.3% on a 10.4% rise in selling, general and administrative expenses to $395.2 million.

LabCorp exited the second quarter of 2018 with cash and cash equivalents of $221.4 million compared with $361.8 million at the end of the first quarter. Year-to-date operating cash flow was $522 million, down 2.7% from $536.4 million in the year-ago period. Free cash flow came in at $362.3 million in this period, down 8.3% from the year-ago period.

During the quarter under discussion, the company returned $75 million to shareholders via share repurchases. The company currently has $993.5 million of authorization remaining under its existing share repurchase program.

Outlook

LabCorp has narrowed its 2018 guidance.

Revenue growth is expected to remain in the band of 10.5-11.5% from 2017 (earlier projected band was 10-12%) including a likely improvement of 50 bps (from projection of 90 bps improvement earlier) from a foreign currency translation. The Zacks Consensus Estimate for current-year revenues is pegged at $11.47 billion.

Adjusted EPS for 2018 has been narrowed to a new range of $11.35 to $11.65 (earlier range was $11.30-$11.70). The consensus mark of $11.56 for the metric falls within the guided range.

Free cash flow has been anticipated within $1.1-$1.2 billion, growth in the band of 0-9.1% from the prior year (unchanged).

Our Take

LabCorp posted a strong second-quarter performance with adjusted earnings and revenues both exceeding the respective Zacks Consensus Estimate. LabCorp Diagnostics business was solid on the back of increasing acquisitions, organic volume expansion and a favorable foreign exchange scenario.

Also, Covance Drug Development has reported sturdy growth over the past few of terms. This uptrend was primarily owing to strategic acquisitions, robust organic growth and a positive foreign currency translation.

We believe that with the integration of newer acquisitions, LabCorp is perfectly positioned to drive long-term profitable growth through a combination of world-class diagnostics, drug development expertise and knowledge services.

The narrowed 2018 guidance however has failed to inspire us. According to the company, the latest expectations include the previously-announced divestiture of the Food Solutions business.

Zacks Rank & Key Picks

LabCorp has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space are Insulet Corporation PODD , ABIOMED, Inc. ABMD and Illumina, Inc. ILMN .

Insulet is expected to release second-quarter fiscal 2018 results on Aug 2. The Zacks Consensus Estimate for the quarterly loss per share is pegged at 13 cents and for revenues at $132.9 million. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

ABIOMED is expected to release first-quarter 2019 results on Jul 26. The Zacks Consensus Estimate for adjusted EPS stands at 80 cents and for the top line at $171.9 million. The stock carries a Zacks Rank of 2.

Illumina is slated to release second-quarter 2018 results on Jul 30. The Zacks Consensus Estimate for bottom line per share is pegged at $1.11 and for revenues at $787.7 million. The company is a Zacks #1 Ranked player.

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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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