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Hologic's (HOLX) Q2 Earnings Meet Estimates, Revenues Top

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Hologic, Inc. HOLX reported second-quarter fiscal 2018 adjusted earnings per share (EPS) of 53 cents, up 6% year over year and in line with the low end of the company’s 53-54 cents guidance. Adjusted EPS was also on par with the Zacks Consensus Estimate.

On a reported basis, the company recorded net loss of $2.46 per share, against net income of $1.84 in second-quarter fiscal 2017. Notably, the reported figure includes non-cash impairment charges for goodwill and in-process research and development associated with Hologic's Cynosure business.

Revenues in Detail

Revenues grossed $789.3 million in the quarter, up 10.3% year over year (up 8.3% at constant exchange rate or CER). The top line surpassed the Zacks Consensus Estimate of $780.1 million and the company’s guidance of $770-$785 million.

Solid contributions from Breast Health and international business drove the top line.

Geographically, revenues in the United States grew 3.3% year over year to $588.5 million. Excluding blood screening and medical aesthetics, U.S. revenues declined marginally. International revenues were up 37.8% (up 28% at CER) to $200.8 million, on strong contribution from Cynosure. Excluding blood screening and medical aesthetics, international revenues increased 26.4% or 15.1% at constant currency.

Hologic, Inc. Price, Consensus and EPS Surprise

 

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

Segments in Detail

Revenues at the Diagnostics segment (35.4% of total revenues) declined 5.5% year over year (down 7.6% at CER) to $279.7 million in the second quarter. Under this segment, Molecular Diagnostics revenues of $150.7 million increased 6.1% (4.4% at CER). The global growth at Molecular Diagnostics was primarily driven by new product revenues along with continued solid uptake of Aptima women's health products.

Cytology and Perinatal revenues of $117.7 million also showed an improvement of 1.8% (down 1.4% at CER).

Revenues at the Breast Health segment (38%) inched up 7% (up 4.9% at CER) to $300.1 million. Revenue growth in the United States was roughly flat. In the reported quarter, the upside was led by higher service and new product revenues. International revenues however climbed 27.6% year over year, marking the third consecutive quarter of growth exceeding 20%.

Revenues from the GYN Surgical business (12.6%) were down 1.7% (down 3.2% at CER) to $99.4 million. Medical Aesthetic business in the quarter reported revenues of $85.5 million, reflecting 10.8% of total revenues. Revenues at Skeletal Health (accounting for the rest) increased 12.6% (up 9.9% at CER) to $24.6 million.

Operational Update

In the fiscal second quarter, Hologic’s gross margin contracted 170 basis points (bps) to 52.6%. Adjusted gross margin also decreased 120 bps to 62.7% due to the divestiture of blood screening business, geographic mix and revenues from low-margin Cynosure products.

Hologic’s adjusted operating expenses amounted to $266.9 million, up 19.7% year over year. Adjusted operating margin contracted a massive 380 bps to 28.9%.

Financial Update

Hologic exited second-quarter fiscal 2018 with cash and cash equivalents of $614.2 million, compared with $664.4 million at the end of first-quarter fiscal 2018. Total long-term debt was $2.74 billion at the end of the reported quarter, compared with $2.76 billion in first-quarter fiscal 2018.

During the quarter, the company generated operating cash flow of $266.5 million, compared with the year-ago $253.4 million. 

Guidance

Hologic has updated its fiscal 2018 financial guidance. The company currently expects adjusted revenues of $3.18-$3.21 billion, compared with the previous range of $3.2-$3.28 billion. The company expects revenues to grow in the range of 2.7-3.7% compared with the previously provided range of 3.9-6.5% at CER. The Zacks Consensus Estimate for revenues is $3.25 billion, above the guided range.

Adjusted EPS guidance remains unchanged, calling for 9.4-11.8% growth to $2.22-$2.27. The Zacks Consensus Estimate for adjusted EPS is pegged at $2.25, within the guided range.

For third-quarter fiscal 2018, Hologic expects adjusted revenues of $795-$810 million, representing annualized decline of 1% to 2.8% at CER. The Zacks Consensus Estimate for revenues is pegged at $832.4 million, above the projected range.

Adjusted EPS is estimated at 55-57 cents, reflecting an annualized growth of 10-14%. The Zacks Consensus Estimate for third-quarter adjusted EPS is pinned at 58 cents, above the company’s guidance.

Our Take

Hologic exited second-quarter fiscal 2018 on a mixed note. Growth across all geographical regions buoys optimism. However, we are disappointed with the decline in revenues at the Diagnostics segment. The blood screening divestiture is also likely to impede growth for the company. Further, the company’s lowering of the revenue guidance for fiscal 2018 on reduced sales expectations from the Cynosure business raises concern.

Zacks Rank & Key Picks

Hologic carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader medical sector which reported solid results this season are Intuitive Surgical ISRG, Chemed Corporation CHE and Baxter International Inc. BAX. While Intuitive Surgical sports a Zacks Rank #1 (Strong Buy), Chemed and Baxter carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported first-quarter 2018 adjusted EPS of $2.44, which beat the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, also surpassing the consensus estimate by 10.6%.

Chemed posted first-quarter 2018 adjusted EPS of $2.72, steering past the Zacks Consensus Estimate of $2.37. Revenues came in at $439.2 million, beating the Zacks Consensus Estimate of $420 million.

Baxter posted first-quarter 2018 adjusted EPS of 70 cents, which beat the Zacks Consensus Estimate by 12.9%. Revenues of $2.68 billion also edged past the Zacks Consensus Estimate of $2.62 billion.

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