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Hologic (HOLX) Q3 Earnings Surpass Estimates, Margins Rise

Zacks Equity Research
·6 mins read

Hologic, Inc. HOLX reported third-quarter fiscal 2020 adjusted earnings per share (EPS) of 75 cents, up 19% year over year. Moreover, the bottom line surpassed the Zacks Consensus Estimate by a stupendous 108.3%.

The company’s GAAP EPS was 53 cents, up 51.4% year over year.

Revenues in Detail

Revenues grossed $822.9 million in the reported quarter, down 3.5% year over year (down 3.1% at constant exchange rate or CER) due to the divestiture of Cynosure. The metric, however, exceeded the Zacks Consensus Estimate by 37.1%.

Excluding the divested Blood Screening and Medical Aesthetics businesses, total revenues were $815.1 million, up 8.2% year over year and 8.7% at CER. Organic revenues (excluding divestitures and the acquired SuperSonic Imagine or SSI business) of $811.2 million increased 7.7% and 8.1% at CER.

Hologic, Inc. Price, Consensus and EPS Surprise

 

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

Hologic, Inc. price-consensus-eps-surprise-chart | Hologic, Inc. Quote

U.S. revenues of $660.8 million rose 2.9%. However, international revenues of $162.1 million declined 22.8% or 21.2% at CER.

Organically, revenues in the United States rose 11.2% year over year to $652.6 million in the quarter. However, international revenues were down 4.7% (down 2.8% at CER) to $158.6 million.

Segments in Detail

Revenues at the Diagnostics segment rose 74.3% year over year (up 74.9% at CER) to $532.2 million in the quarter under review, with Molecular Diagnostics being the major driver. Molecular Diagnostics’ revenues of $460.3 million climbed 169.3% (up 170.3% at CER), continuing the division’s strong performance. However, Blood Screening revenues of $7.8 million fell 45.1% (down 45.3% at CER).

Revenues at the Breast Health segment declined 31.2% (down 30.9% at CER) to $224 million. This primarily resulted from adverse impacts on demand for this segment’s products, especially in the United States, due to customers’ focus on responding to the pandemic, delayed or reduced purchases of capital equipment and rescheduled routine screening appointments. However, fall in service revenues and international sales were comparatively less, thus softening the overall decline.

Domestic sales were dismal in this segment in the quarter, with a 34.8% revenue decline year over year and 35% drop without SSI. Further, outside the United States, Breast Health sales decreased 16.5% in total and fell 21.9% without SSI.

Revenues at the GYN Surgical business fell 54.1% (down 53.9% at CER) to $51.5 million, while revenues at Skeletal Health dropped 37.7% (down 37.3% at CER) to $15.2 million.

Notably, Hologic no longer reports for the Medical Aesthetics segment post the divestiture of Cynosure Medical Aesthetics business on Dec 30, 2019.

Operational Update

In the fiscal third quarter, the company-reported adjusted gross margin expanded 310 basis points to 64.7%. According to the company, the benefits resulted from sales of SARS-CoV-2 tests and the divestiture of the lower-margin Cynosure business. However, this gain was partially offset by lower sales in Hologic’s other divisions due to the pandemic.

Adjusted operating expenses amounted to $261.1 million, down 5.5% year over year. However, the company-reported adjusted operating margin expanded 380 basis points to 33%.

Financial Update

Hologic exited the third quarter of fiscal 2020 with cash and cash equivalents of $744.2 million compared with $799.8 million at the end of second-quarter fiscal 2020. Total long-term debt was $3.29 billion at the end of the quarter under review, compared with $3.56 billion at the end of second-quarter fiscal 2020.

Cumulative net cash provided by operating activities at the end of the fiscal third quarter was $454.6 million compared with $401.8 million a year ago.

Guidance

Hologic, boosted by the strength in its COVID-19 tests and the ongoing recovery of its other divisions, has provided the financial guidance for fourth-quarter fiscal 2020.

The company projects revenues within $925-$1,025 million (projection of 6.8-18.4% growth rate). The growth rate is projected in the range of 6.7-18.3% at CER and within 17.4-30.3% organically. The Zacks Consensus Estimate for fourth-quarter fiscal 2020 revenues is pegged at $831.9 million.

GAAP EPS is estimated within 73-93 cents, which projects growth of 386.7-520%.

The adjusted EPS is estimated within 95 cents-$1.15, with projected growth of 46.2-76.9%. The Zacks Consensus Estimate for fourth-quarter fiscal 2020 EPS is pegged at 74 cents.

Our Take

Hologic exited the fiscal third quarter with better-than-expected results. The bottom-line growth amid the pandemic-led business disruptions is encouraging. Rise in organic revenues is impressive as well. Growth in Diagnostic revenues, led by a stupendous improvement in the company’s Molecular Diagnostics revenues, buoys optimism. Robust demand for the company’s COVID-19 related products and ongoing recovery in other segments have enabled the company to provide fiscal fourth-quarter guidance, which instills confidence in investors. Expansion of both margins looks encouraging.

On the flip side, fall in its other segments’ revenues and the overall top line due to the pandemic is worrying. Dismal international performance is also a cause of concern.

Zacks Rank and Key Picks

Hologic currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. WST, Thermo Fisher Scientific Inc. TMO and Laboratory Corporation of America Holdings LH or LabCorp. All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

West Pharmaceutical reported second-quarter 2020 adjusted EPS of $1.25 in contrast to the Zacks Consensus Estimate of a loss of 91 cents. Net revenues of $527.2 million outpaced the consensus estimate by 6.9%.

Thermo Fisher reported second-quarter 2020 adjusted EPS of $3.89, beating the Zacks Consensus Estimate by 45.7%. Revenues of $6.92 billion outpaced the consensus mark by 0.1%.

LabCorp reported second-quarter 2020 adjusted EPS of $2.57, surpassing the Zacks Consensus Estimate of 78 cents. Revenues of $2.77 billion outpaced the consensus mark by 14.3%.

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Hologic, Inc. (HOLX) : Free Stock Analysis Report
 
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