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Hologic (HOLX) Down 5.2% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Hologic (HOLX). Shares have lost about 5.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hologic due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Hologic Rides on Strong Breast Health Business in Q2

Hologic reported second-quarter fiscal 2019 adjusted earnings per share (EPS) of 58 cents, up 9.4% year over year. The bottom line surpassed the Zacks Consensus Estimate by a penny.

On a reported basis, the company recorded loss of $1.01 per share, narrower than the loss of $2.46 in the year- ago quarter.

Revenues in Detail

Revenues grossed $818.4 million in the reported quarter, up 3.7% year over year (up 5.2% at constant exchange rate or CER). The top line surpassed the Zacks Consensus Estimate by 1.6%.

Geographically, revenues in the United States rose 4.6% year over year to $615.5 million in the quarter. International revenues were up 1% (up 6.9% at CER) to $202.9 million, primarily on strong contribution from the Molecular Diagnostics, Breast Health and Surgical businesses.

Segments in Detail

Revenues at the Diagnostics segment rose 6% year over year (up 7.8% at CER) to $296.7 million in the quarter under review. Under this segment, Molecular Diagnostics revenues of $167.8 million rose 11.4% (up 12.8% at CER) fuelled by strong international performance. However, Cytology and Perinatal revenues of $115.5 million registered a 1.9% drop (up 0.3% at CER).

Revenues at the Breast Health segment increased 7.1% (up 8.4% at CER) to $321.5 million. This metric in the United States grew 8.8%. Internationally, Breast Health revenues rose 1.2% (up 6.9% at CER).

Revenues at the GYN Surgical business grew 2.8% (up 4.1% at CER) to $102.2 million. Medical Aesthetic business in the reported quarter registered revenues of $73.8 million, reflecting a 13.7% decline (down 12.1% at CER).
Revenues at Skeletal Health declined 1.4% (up 0.8% at CER) to $24.2 million.

Operational Update

In the fiscal second quarter, Hologic’s adjusted gross margin contracted 170 basis points (bps) to 61%. This downside was primarily due to an adverse geographic and product sales mix.

Adjusted operating expenses amounted to $272.8 million, up 2.2% year over year. Adjusted operating margin contracted 120 bps to 27.7%.

Financial Update

Hologic exited the second quarter of fiscal 2019 with cash and cash equivalents of $401 million compared with $311.1 million at the end of first-quarter fiscal 2019. Total long-term debt was $3.09 billion in the reported quarter compared with $604.4 billion at the end of the year-ago quarter.

Year to date, net cash provided by operating activities was $238.1 million compared with $266.5 million a year ago.

Guidance Updated

Hologic has updated its fiscal 2019 financial guidance. The company now expects adjusted revenues in the range of $3.32-$3.34billion, up from the earlier-announced range of $3.30-$3.33 billion (a projection of 3.3-3.9% growth rate).

The Zacks Consensus Estimate for revenues is pegged at $3.32 billion, in line with the low end of the guided range.
The company envisions adjusted EPS of $2.41-$2.44 compared with $2.39-$2.43 stated previously (a projection of 8.1-9.4% growth rate). The consensus mark for the metric is pegged at $2.41, within the estimated range.

For third-quarter fiscal 2019, Hologic anticipates adjusted revenues of $825-$840,  indicating 0.1-1.9% growth. The consensus estimate for revenues is $840.9 million, slightly above the projected range.

Adjusted EPS is predicted at 60-62 cents, reflecting annualized growth of 3.4-6.9%. The Zacks Consensus Estimate for fiscal third-quarter adjusted EPS is pegged at 62 cents, within the company’s forecasted range.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Hologic has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Hologic has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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