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LabCorp (LH) Q1 Earnings Top Mark, Revenues Lag Estimates

Urmimala Biswas

Laboratory Corporation of America Holdings LH, or LabCorp, reported first-quarter 2019 adjusted earnings per share (EPS) of $2.62, down 5.8% from the year-ago quarter. However, the bottom line surpassed the Zacks Consensus Estimate by 3.6%.

On a reported basis, net earnings came in at $1.86 per share as compared with $1.67 a year ago.

Revenues in the quarter under review dipped 2.1% year over year to $2.79 billion. The top line also lagged the Zacks Consensus Estimate of $2.82 billion.

The year-over-year decline was primarily due to a 1.8% negative impact from the disposition of businesses and foreign currency translation of approximately 0.9%, partially offset by growth from acquisitions of 0.5% and organic growth of 0.2% (which includes the negative impact from Protecting Access to Medicare Act or PAMA of 0.9%).

Quarter Under Review

LabCorp reports under two operating segments: LabCorp Diagnostics and Covance Drug Development.

Laboratory Corporation of America Holdings Price, Consensus and EPS Surprise

Laboratory Corporation of America Holdings Price, Consensus and EPS Surprise | Laboratory Corporation of America Holdings Quote

In the first quarter, LabCorp Diagnostics reported revenues of $1.72 billion, a 2.7% drop year over year. The decline was primarily due to a 2.9% headwind from the disposition of businesses and a 1.5% negative impact from the implementation of the PAMA. In addition, foreign currency translation reduced revenue by approximately 0.3%.

Excluding the disposition of businesses, the company reported a 0.8% rise in total volume (measured by requisition) and a 0.4% decline in revenue per requisition in the quarter under review.

Covance Drug Development reported a 0.4% decline in revenues to $1.07 billion in the first quarter. The downside was primarily due to the adverse impact of foreign currency translation of nearly 210 bps, partially offset by partially offset by growth from acquisitions of 1.2% and organic growth of 0.5%.

Gross margin expanded 94 bps to 28.3% in the reported quarter. Adjusted operating income was up 3.6% year over year to $395.9 million. Also, adjusted operating margin expanded 77 bps from the year-ago quarter to 14.2%.

LabCorp exited the first quarter with cash and cash equivalents of $348.8 million compared with $426.8 million at the end of 2018.At the end of the first quarter, operating cash flow was $165.8 million, down from $179.7 million in the year-ago period. Free cash flow came in at $71.6 million in this period, down from $107.2 million a year ago.

During the quarter under discussion, the company returned $100 million to shareholders via share repurchases. LabCorp currently has $1.25 billion of authorization remaining under its existing share repurchase plan.

Outlook

LabCorp has updated its 2019 guidance.

Revenue growth expectation has been reiterated in the band of 0.5-2.5% from 2018. This includes a projected adverse impact from the disposition of businesses of around 1.2% and foreign currency translation of roughly 0.5%. The Zacks Consensus Estimate for current-year revenues is pegged at $11.47 billion.

Adjusted EPS expectation for 2019 has been raised to a range of $11.05 to $11.45 from the earlier range of $11 to $11.40. The consensus mark of $11.22 for the metric is within the guided range.

Free cash flow is projected in the band of $950 million-$1.05 billion (unchanged).

Our Take

LabCorp exited the first quarter on a mixed note with earnings ahead of the Zacks Consensus Estimate and revenues lagging the mark. While increasing acquisitions and favorable mix positively contributed to LabCorp’s Diagnostics business in the quarter, the disposition of certain businesses and the implementation of PAMA dented growth.

Covance Drug Development also reported a year-over-year decline. The strength from acquisitions and organic growth were negated by adverse impact of foreign currency translation.

Zacks Rank & Key Picks

LabCorp carries a Zacks Rank #3 (Hold).

Some better-ranked stocks which posted solid results this earning season are Stryker Corp. SYK, Abbott Laboratories ABT and CONMED Corp. CNMD, each carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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

CONMED posted first-quarter 2019 EPS of 57 cents, which beat the Zacks Consensus Estimate of 54 cents. Revenues were $218.4 million, surpassing the consensus estimate of $213 million.

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