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Laboratory Corporation of America Holdings (LH)

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Laboratory Corp. of America Holdings (LH)

Q3 2018 Earnings Call

October 24, 2018 9:00 am ET

Executives

Scott Frommer - Laboratory Corp. of America Holdings

David P. King - Laboratory Corp. of America Holdings

Glenn Andrew Eisenberg - Laboratory Corp. of America Holdings

John D. Ratliff - Laboratory Corp. of America Holdings

Analysts

Ross Muken - Evercore ISI

Lisa C. Gill - JPMorgan Securities LLC

Patrick Donnelly - Goldman Sachs & Co. LLC

Jack Meehan - Barclays Capital, Inc.

Kevin Ellich - Craig-Hallum Capital Group LLC

Ralph Giacobbe - Citigroup Global Markets, Inc.

Erin Wilson Wright - Credit Suisse Securities (USA) LLC

Ricky R. Goldwasser - Morgan Stanley & Co. LLC

Derik de Bruin - Bank of America Merrill Lynch

Brian Gil Tanquilut - Jefferies LLC

William R. Quirk - Piper Jaffray & Co.

Mark Anthony Massaro - Canaccord Genuity, Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2018 LabCorp's earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Scott Frommer, Vice President of Investor Relations. You may begin.

Scott Frommer - Laboratory Corp. of America Holdings

Good morning and welcome to LabCorp's third quarter 2018 conference call. As detailed in today's press release, there will be a replay of this conference call available via telephone and Internet.

With me today are Dave King, Chairman and Chief Executive Officer; Glenn Eisenberg, Executive Vice President and Chief Financial Officer; and John Ratliff, CEO of Covance Drug Development.

In addition to our press release, we also furnished Form 8-K this morning that includes additional financial information. Both are available in the Investor Relations section of our website at www.labcorp.com and include a reconciliation of non-GAAP financial measures discussed during today's call to GAAP.

Finally, we are making forward-looking statements during today's call. These forward-looking statements include, but are not limited to, statements with respect to 2018 guidance and the related assumptions, the impact of various factors on operating and financial results, and the opportunities for future growth.

These statements are based upon current expectations and are subject to change based upon various factors that could affect our financial results. Some of these factors are set forth in detail in our 2017 Form 10-K and subsequent Forms 10-Q, and in the company's other filings with the SEC. We have no obligation to provide any updates to these forward-looking statements even if our expectations change.

Now, I'll turn the call over to Dave King.

David P. King - Laboratory Corp. of America Holdings

Thank you, Scott, and good morning. LabCorp's results in the quarter were highlighted by year-over-year revenue growth of 8% and adjusted EPS growth of 16%. Our performance was driven by strong results of our Covance business this quarter with increased net orders, a 1.41 book-to-bill, organic revenue growth of over 7% and 130 basis points of margin expansion. These are clear indications that our investments in the business, our differentiated offering and our Covance LaunchPad process improvement initiative are combining to deliver results in the market.

In Diagnostics, excluding the impact of a ransomware attack in July and Hurricane Florence, we delivered 1.4% organic revenue and 1.9% organic volume growth. Nonetheless, this outcome was below our expectations with margin performance particularly disappointing and we are taking strong action as a result. First, we are making organizational changes to strengthen our leadership and operational performance.

Second, we are launching the next phase of Diagnostics LaunchPad which will result in multiyear cost savings of a similar magnitude to LaunchPad Phase I. Applying the same principles as before, process reengineering, automation, integration of new tools and technology and facility optimization, this phase of LaunchPad will build on our prior work and lead to an even more streamlined and efficient Diagnostics business. We will provide additional detail about the size and scope of LaunchPad Phase II on our next earnings call.

During the quarter, we continued to be good stewards of capital. We sharpened our life sciences focus by divesting our Food Solutions business at a very attractive valuation. As a result of the business divestiture, we exited the quarter in a strong cash position. We continued to develop our acquisition pipeline and increased share repurchases to $150 million. We are committed to supporting near and long term value creation for capital deployment, including share repurchases, internal capital investments, strategic acquisitions and debt paydown.

As Glenn will explain, we expect to deploy more capital in the fourth quarter and in 2019 towards share repurchases, which we will complement with financially sound acquisitions as we continue to create shareholder value.

I'll now update you on our progress on key strategic initiatives. The first strategic objective is to create a leading and differentiated consumer experience. We continue to enhance patient convenience and engagement, broaden our channel to market, and build brand loyalty.

Earlier this month, following positive results and very high Net Promoter Scores at our initial 17 sites, we announced an agreement to significantly expand our LabCorp-Walgreens collaboration to at least 600 locations. Consumers, healthcare providers and managed care plans have expressed strong interest in this innovative partnership. LabCorp and Walgreens complementary healthcare expertise underpins the LabCorp-Walgreens channel, which is uniquely situated to deliver a wide range of personalized, integrated, consumer-facing services over time.

Examples of additional collaboration opportunities under discussion include novel approaches to clinical research and supporting the ongoing transition to value-based care. We will begin announcing the newest LabCorp at Walgreens locations later this year.

Read the rest of this transcript on seekingalpha.com