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Hologic (HOLX - Analyst Report) reported an adjusted EPS of 34 cents during the fourth quarter of fiscal 2011, a penny above the Zacks Consensus Estimate and 4 cents above the year-ago figure. Revenues were $467 million, an increase of 9% year over year and higher than the Zacks Consensus Estimate of $458 million. For fiscal 2011, revenues increased 6.5% to $1789.3 million resulting in an adjusted EPS of $1.26 compared with $1.18 in fiscal 2010 and a penny above the Zacks Consensus Estimate.

Segments

Hologic operates through four segments − Breast Health, Diagnostics, GYN (Gynecology) Surgical and Skeletal Health − each contributing a corresponding 47%, 32%, 16% and 5% to total revenue during the quarter. These segments recorded robust growth of 10.9% year over year (at $219.1 million), 11.7% ($150.5 million), 1.4% ($74 million) and 2.1% ($23.4 million), respectively.

The upside at the Breast Health segment was driven by a 9.2% product revenue growth coupled with a 14.4% rise in service revenue related to Hologic’s increased installed base of digital mammography systems. Product revenue growth was driven by shift in sales from Selenia to Dimensions, stronger sales of breast biopsy products led by Eviva and the inclusion of a full quarter of sales from Sentinelle Medical (acquired in August 2010).

Growth at the Diagnostic segment was driven by increased revenues from both Cervista HPV and ThinPrep. Besides, incremental ThinPrep revenue from the TCT acquisition was $10 million during the reported quarter.

The marginal increase in GYN Surgical revenues was primarily due to inclusion of MyoSure revenues and growth in sales of Adiana products, offset by lower sales of NovaSure system. The increase in Skeletal Health revenues emanated from higher sales of bone densitometry units.

Over the past few months, Hologic has received approvals from the US Food and Drug Administration for a number of its products. These include Trident specimen radiography system, Sentinelle Endo Coil Array for pelvic imaging and the new 16 channel Sentinelle Breast Coil. The company also received CE Mark approval for Cervista MTA (Medium Throughput) system, which automates the DNA extraction and HPV detection steps of the Cervista HPV HR test.

Margins

During the reported quarter, gross margin improved 100 basis points (bps) year over year to 61.9%. However, a 4.9% rise in research and development expenses, a 21.4% increase in selling and marketing expenses and 6% higher general and administrative expenses led to a 13% increase in operating expenses to $143.7 million.  Despite spiraling expenses, operating margin remained almost flat at 31.1% on a year-over-year basis.

Guidance

Hologic provided its guidance for the first quarter of fiscal 2012 and full year 2012. For the first quarter, the company expects to report $465−$470 million of revenues (representing annualized growth of 8−9%) resulting in adjusted EPS of 32 cents. The Zacks Consensus EPS Estimate of 33 cents is marginally ahead of the company’s guidance, while the revenue outlook of $467 million lies within the company’s guided range.

For fiscal 2012, Hologic expects to report revenues of $1900−$1925 million (growth of 6−8%) with adjusted EPS of $1.35−$1.37. The Zacks Consensus EPS Estimate of $1.38 is higher than the company’s forecast while the revenue forecast of $1908 million remains within the range.

Our Take

With a wide range of products, Hologic has become an industry giant in the field of women’s health products. Moreover, the company is also undertaking several steps, including acquisitions, international expansion and product development to bolster its top line.

However, the company continues to be affected by lower visits to physicians due to the prevailing economic uncertainty. This is evident from the company’s guidance which is primarily based on the recently made acquisitions and to a lesser extent on organic growth. Hologic also witnesses tough competition from players like Qiagen (QGEN - Analyst Report), Conceptus , among others. The stock retains a Zacks #4 Rank (Sell) in the short term.

Over the long term, we are Neutral on Hologic, in line with its peers. Both Qiagen and Conceptus carry Zacks #3 ranks (Hold) in the short term.

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