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LabCorp (LH) Q3 Earnings Surpass Estimates, 2021 View Up

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Laboratory Corporation of America Holdings LH or LabCorp reported third-quarter 2021 adjusted earnings per share (EPS) of $6.82, which marked a 18.9% plunge from the year-ago figure. The adjusted figure excludes the impact of certain debt refinancing costs and change in UK tax rates among others. The bottom line however surpassed the Zacks Consensus Estimate by 42.9%.

On a GAAP basis, net earnings were $6.05 per share, down 15.6% year over year.

Revenues in the quarter under review increased 4.3% year over year to $4.06 billion and exceeded the Zacks Consensus Estimate by 13.4%.

The increase in revenues can be attributed to 10.2% growth in organic base business (excluding COVID-19 testing revenues), partially offset by a 6.8% decline in COVID-19 PCR and antibody testing. The quarter recognized 0.4% growth from acquisitions and 0.5% contribution from favorable foreign currency translation.

Quarter in Detail

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

LabCorp Diagnostics third-quarter revenues of $2.62 billion reflected a 3.2% drop year over year. On an organic basis, revenues declined 3.9%. There was a 0.3% favorable impact from foreign currency translation. Acquisition-related growth was 0.4% in the quarter. While base business reported 5.8% growth, COVID-19 testing revenues declined 9.7% in the reported quarter.

The company witnessed a 0.2% rise in total volume (measured by requisition). Organic volume edged down 0.1%. Acquisition volume growth was 0.2%. Organic volume growth was impacted by a 5.9% drop in COVID-19 testing, partially offset by a 5.9% increase in base business. Organic Base Business volume was up 7.7% year over year.

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 Price, Consensus and EPS Surprise

Laboratory Corporation of America Holdings price-consensus-eps-surprise-chart | Laboratory Corporation of America Holdings Quote

Covance Drug Development revenues grew 17.5% to $1.46 billion in the third quarter on organic Base Business growth of 19.9%, acquisition growth of 0.4% and favorable foreign currency translation of 1%. However, this was partially offset by 3.5% decline in COVID-19 testing performed through its Central Laboratories business and a 0.3% negative impact of divestitures.

Margins

Gross margin contracted 592 basis points (bps) to 34.1% in the third quarter. Adjusted operating income was $865.6 million, marking a 24.1% plunge from the year-ago period. Adjusted operating margin contracted 795 bps from the year-ago quarter to 21.3%.

Cash Position

LabCorp exited the third quarter with cash and cash equivalents of $2.04 billion compared with $1.96 billion at the end of the second quarter. Cumulative cash flow from operating activities at the end of the third quarter was $767.3 million, down from $786.2 million a year ago. Additionally, cumulative free cash flow at the end of the third quarter was $2.10 billion, up from $1.08 billion a year ago.

In the third quarter, the company repurchased shares worth $300 million under its existing share repurchase program.

2021 View

The company raised its 2021 guidance. Total LabCorp Enterprise revenues are expected to grow in the range of 13-14% (earlier expectation was 6.5-9% growth). This includes Base Business growth in the range of 18.5-19.5% (17-19%). COVID-19 testing revenues are expected to decline in the range of 6-11% (down 33-38%).

Total Diagnostics revenues are expected to grow 8-10% (earlier expectation was down 1% to up 2%). Total Drug Development revenues are expected to rise 19.5-20.5% (17-19% growth expected earlier) from 2020.

The Zacks Consensus Estimate for full-year revenues is pegged at $15.26 billion, projecting 9.2% growth from 2020.

Our Take

LabCorp exited the third quarter of 2021 with better-than-expected earnings and revenues. However, the earnings figure declined on a year-over-year basis.

Diagnostics revenues in the quarter were significantly impacted by decelerating demand for COVID-19 testing.

Covance Drug Development however delivered higher sales on strong base business growth. In the quarter under review, overall base Business improved 14.6%. On projection of an improved outlook for the rest of the year, the company has raised its full-year guidance.

Zacks Rank

LabCorp currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Quest Diagnostics Incorporated DGX, Abbott Laboratories ABT, and HCA Healthcare, Inc. HCA. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Quest Diagnostics, carrying a Zacks Rank #2 (Buy), reported third-quarter 2021 adjusted EPS of $3.96, which beat the Zacks Consensus Estimate by 33.8%. Third-quarter revenues of $2.77 billion outpaced the consensus mark by 12.6%.

Abbott reported third-quarter 2021 adjusted EPS of $1.40, which surpassed the Zacks Consensus Estimate by 52.2%. Third-quarter revenues of $10.93 billion outpaced the Zacks Consensus Estimate by 15.3%. It currently carries a Zacks Rank #2.

HCA Healthcare, carrying a Zacks Rank #2, reported third-quarter 2021 adjusted EPS of $4.57, surpassing the Zacks Consensus Estimate by 11.5%. Revenues of $15.28 billion surpassed the Zacks Consensus Estimate by 4.7%.


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