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Hologic's (HOLX) Q2 Earnings Beat Estimates, Margins Fall

Zacks Equity Research

Hologic, Inc. HOLX 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).

Hologic, Inc. Price, Consensus and EPS Surprise


Hologic, Inc. Price, Consensus and EPS Surprise

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

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.

Our Take

Hologic exited the second quarter of fiscal 2019 on a solid note. The strong top-line growth was led by solid year-over-year rise in core businesses like Breast Health and Molecular Diagnostics. We are also upbeat about the recent launches like Aptima Mycoplasma genitalium assay and the Unifi Analytics business intelligence tool for mammography centers in the United States, Omnhysteroscope in Europe and Canada, and LOCalize wireless breast lesion localization system in Europe.

On the flip side, both margins contracted in the quarter under review.

Zacks Rank and Key Picks

Hologic currently carries a Zacks Rank #3 (Hold). Some better-ranked companies which reported solid results this earnings season are Stryker Corporation SYK, Abbott Laboratories ABT and CONMED Corporation CNMD, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker delivered first-quarter 2019 adjusted EPS of $1.88, beating the Zacks Consensus Estimate by 2.2%. Revenues of $3.52 billion were in line with the consensus estimate.

Abbott reported first-quarter 2019 adjusted EPS of 63 cents, topping the Zacks Consensus Estimate by 3.3%. Worldwide sales totaled $7.54 billion, above the consensus estimate of $7.47 billion.

CONMED posted first-quarter 2019 adjusted EPS of 57 cents, which exceeded the Zacks Consensus Estimate of 54 cents. Revenues summed $218.4 million, outshining the consensus mark of $213 million.

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