Hologic Inc. (HOLX) reported adjusted earnings per share of 38 cents in the third quarter of fiscal 2013, higher than the year-ago earnings of 35 cents as well as the company’s expectations of 36−37 cents. The result also beat the Zacks Consensus Estimate by a penny.
On a reported basis, net loss in the third quarter was almost $11 million or 4 cents per share, worse than the net income of $23.6 million or 9 cents per share in the prior-year quarter.
Quarter in Detail
Revenues were $626.1 million in the quarter, up 33.2% year over year. Despite solid growth, the top line was below the Zacks Consensus Estimate of $629 million. However, revenues were within the company’s guidance range of $625−$630 million. On a proforma basis (including Gen-Probe revenues in the prior-year quarter), revenues were 2% higher year over year.
Revenue growth was led by inclusion of Gen-Probe revenues, higher sales of MyoSure and record high placement of 3D Dimensions tomosynthesis systems and higher service revenues on the back of wider installed base of digital mammography systems. However, growth was partially offset by a decline in sales of legacy products, mainly ThinPrep, NovaSure, 2D Selenia and 2D Dimensions mammography systems and discontinuation of Adiana permanent contraception system in fiscal 2012.
Subsequent to the Gen-Probe deal, Diagnostics became the largest segment at Hologic (contributing 47.5% in the second quarter). The core segment recorded robust growth of 87.4% year over year to $297.4 million in the reported quarter. The upside was primarily led by the inclusion of the Gen-Probe portfolio, somewhat offset by lower ThinPrep sales and weaker contributions from legacy products.
The company’s other segments − Breast Health, GYN Surgical and Skeletal Health − recorded respective sales of $230 million (up 8.8% year over year), $75.8 million (down 2.4%) and $22.9 million (up 2.2%).
The upside at the Breast Health segment was driven by a 7.2% increase in service revenues from the company's increasing installed base of digital mammography systems, along with a 9.7% rise in product revenues. The growth in product revenues was a major positive after lower revenues in the last quarter.
Until the second quarter, the decline in mammography product revenues reflected the ongoing mix shift to the latest tomosynthesis systems from the company’s 2D Selenia and 2D Dimensions product lines. In the reported quarter, the company witnessed record sales of 3D Dimensions system, driving product revenue growth. Sale of Hologic’s offering for breast biopsy – Eviva also improved from the year-ago quarter.
The GYN Surgical business recorded decline on account of discontinuation of Adiana system, and slower NovaSure system sales despite higher sales of MyoSure systems. After adjusting for the discontinuation of Adiana, GYN Surgical revenues improved 1% in the quarter. On the other hand, revenues from Skeletal Health increased due to higher sales of densitometry systems and mini C-arm systems.
Hologic exited the third quarter with cash and cash equivalents of $964.4 million, higher than $566.1 million at the end of fiscal 2012. The company’s long-term debt of about $5,004.6 million at the end of the quarter was almost in line with the debt of $5,035.6 million at the end of the prior fiscal.
Hologic provided its guidance for the fourth quarter of fiscal 2013. For the said quarter, the company expects revenues of $615−$620 million (representing annualized growth of 2%−4%) resulting in adjusted earnings of 36−37 cents per share. The revenue guidance is way below the current Zacks Consensus Estimate of $653 million whereas, the Zacks Consensus Estimate of 37 cents tallies with the high end of the company’s forecast.
Hologic updated its fiscal 2013 revenue guidance. The company expects to report adjusted revenues of $2,505−$2,515 million compared with the earlier outlook of $2,530−$2,550 million. The updated guidance represents 24%−25% growth. The current Zacks Consensus Estimate of $2,542 million lies outside the guidance range. The company also lowered its adjusted EPS guidance to $1.46−$1.47 against the earlier guidance of $1.54−$1.56. The Zacks Consensus Estimate of $1.54 lies outside the guidance range.
Notwithstanding the EPS result that edged past the Zacks Consensus Estimate, Hologic reported a dull quarter with disappointing outlook for the fourth quarter of fiscal 2013. In fact, the company’s expectations for fourth-quarter top-line reflect revenue decline on a proforma basis. The lower revision of guidance for fiscal 2013 was another downside. As a result, the stock sank 3.69% in after-hours trading on the day of the results.
In our opinion, the third-quarter results reflect that Hologic is still plagued by several challenges – primarily lower sales of legacy products, ongoing shift to 3D tomosynthesis technology and tough capital spending environment among others. If the downward revision of fiscal 2013 guidance is any indication, the ongoing concerns are likely to persist for the rest of the fiscal.
The stock carries a Zacks Rank #4 (Sell). While we prefer to avoid Hologic, Mindray Medical International Limited (MR), Cyberonics Inc. (CYBX) and IDEXX Laboratories, Inc. (IDXX) are worth considering. These stocks carry Zacks Rank #2 (Buy).
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