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Hologic Inc. (HOLX - Analyst Report) reported adjusted earnings per share of 35 cents in the fourth quarter of fiscal 2013, higher than the year-ago adjusted earnings of 33 cents but below the company’s expectations of 36−37 cents. The result also missed the Zacks Consensus Estimate by 2 cents. Fiscal 2013 adjusted earnings came in at $1.50 per share, up 8.7% year over year.

On a reported basis, net loss in the fourth quarter was $1.1 billion or $4.11 per share, significantly wider than net loss of $77.8 million or 29 cents per share in the prior-year quarter. Full-year reported net loss was $1.2 billion or $4.36 per share, considerably lagging the year-ago net loss of $73.6 million or 28 cents a share.

Quarter in Detail

Revenues were $622.1 million in the quarter, up 3.7% from the year-ago adjusted revenues of $600.2 million. The year-ago adjusted figure was on the basis of contingent revenues earned under Hologic’s collaboration with Novartis AG (NVS), which was eliminated as a result of the effect of purchase accounting. Despite solid growth, the top line was below the Zacks Consensus Estimate of $625 million. However, revenues exceeded the company’s guidance range of $615−$620 million.

For the full year, on a pro forma basis (including certain adjustments related to Novartis collaboration and other), revenues came in at $2.5 billion, up 24.9% from the year-ago comparable period.

In the reported quarter, strong growth in 3D tomosynthesisand MyoSure product lines and a favorable increase in service revenues were offset by poor ThinPrep and NovaSure sales and 2D mammography system sales due to the mix shift to 3D. Unfavorable currency had a negligible impact on revenues.

Subsequent to the Gen-Probe deal, Diagnostics became the largest segment at Hologic. The core segment recorded growth of 14.4% year over year on a reported basis and 9.4% year over year on an adjusted basis to $290.0 million in the reported quarter. The upside was primarily led by the inclusion of the Gen-Probe portfolio for a full quarter, somewhat neutralized by lower ThinPrep sales and weaker contributions from legacy products.

The company’s other segments − Breast Health, GYN Surgical and Skeletal Health − recorded respective sales of $234.2 million (up 1.7% year over year), $76.7 million (down 3.8%) and $21.2 million (down 15.3%).

The upside at the Breast Health segment was driven by a 4.3% increase in service revenues from the company's increasing installed base of digital mammography systems, along with a rise in product revenues. The growth in product sales was driven by an increasing sales shift to 3D Dimensions systems from 2D Selenia and 2D Dimensions systems. Product revenues from 3D Dimensions systems increased a stupendous 50.5%, partially offset by an overall sales decline of 2D systems.

The GYN Surgical business recorded a downfall on account of lower NovaSure system sales, despite higher sales of MyoSure systems. On the other hand, revenues from Skeletal Health dropped with lower sales of bone densitometry systems and mini C-arm systems.

Hologic exited fiscal 2013 with cash and cash equivalents of $829.4 million, higher than $566.1 million at the end of fiscal 2012. The company’s long-term debt of about $4,805.9 million at the end of the quarter was lower than the debt of $5,035.6 million at the end of the prior fiscal.

Guidance

Hologic provided its guidance for both first-quarter fiscal 2014 and the full year. For the said quarter, the company expects revenues of $600−$610 million (representing annualized decline of 5% to 7%) resulting in adjusted earnings of 30−31 cents per share. Both revenue and EPS guidance were way below the current Zacks Consensus Estimate of $643 million and 39 cents respectively.

For the full year, the company expects to report adjusted revenues of $2,425−$2,475 million, representing a 1−3% decline over the last year. The current Zacks Consensus Estimate of $2,577 million lies outside the guidance range. The company also expects its adjusted EPS guidance in the range of $1.32−$1.38. The Zacks Consensus Estimate of $1.63 is way ahead of the guidance range.

Our View

Hologic reported a dull quarter with both top- and bottom-line miss. The company also posted a disappointing outlook for first quarter and fiscal 2014.

In our opinion, the fourth-quarter results reflect that Hologic is still plagued by several challenges – primarily lower sales of legacy products, ongoing shift to 3D tomosynthesis technology and tough capital spending environment among others. If the fiscal 2014 guidance is any indication, the ongoing concerns are likely to persist in the coming fiscal.


The stock presently carries a Zacks Rank #3 (Hold). While we prefer to avoid Hologic at the moment, Align Technologies Inc., (ALGN - Analyst Report), Cardinal Health, Inc. (CAH - Analyst Report) and Mindray Medical International Limited (MR - Analyst Report) are worth considering. All these stocks carry a Zacks Rank #1 (Strong Buy).

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