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Hologic (HOLX - Analyst Report) reported net loss of $77.8 million or 29 cents per share in the fourth quarter of fiscal 2012 compared with income of $27.6 million or 10 cents per share in the year-ago quarter. After taking into account certain one-time items, adjusted earnings came in at 37 cents. The result surpassed the Zacks Consensus Estimate by a penny, and beat the year-ago adjusted earnings of 34 cents as well. For the full year, adjusted earnings were $1.38 per share, in line with the Zacks Consensus Estimate, but surpassing the previous year’s $1.27 per share.

Revenues were $588.5 million in the quarter, an increase of 26% year over and ahead of the Zacks Consensus Estimate of $559 million. However, this was excluding the $11.6 million of contingent revenue received under an agreement of Gen-Probe with Novartis (NVS - Analyst Report). Hologic completed the acquisition of Gen-Probe on August 1, 2012. The company’s legacy business recorded revenues of $499.1 million, up 7% year over year and exceeding its guidance of $485 million. For fiscal 2012, the company reported $2 billion as revenues, increasing 11.9% and surpassing the Zacks Consensus Estimate of $1.9 billion.

Segments

Subsequent to the Gen-Probe deal, Diagnostics became the largest segment at Hologic, recording revenues of $253.5 million during the reported quarter compared with $150.5 million in the year-ago quarter. The upside was primarily based on the inclusion of Gen-Probe revenues ($89.5 million or $101.1 million as adjusted), higher ThinPrep revenues and strong growth in the molecular diagnostics products. Last month, the company’s Aptima HPV 16 18/45 genotype assay received approval from the US Food and Drug Administration (‘FDA’) for use on the Tigris system.

The company’s other segments − Breast Health, GYN Surgical and Skeletal Health − recorded respective sales of $230.3 million (up 5.1% year over year), $79.7 million (up 7.7%) and $25.1 million (up 7.2%).

The upside at the Breast Health segment was driven by an increase in service revenues related to the growing installed base of digital mammography systems. During the third quarter, the faster-than-expected shift in demand from 2D to 3D systems delayed installations and led to a higher-than-expected backlog of units. These units were successfully shipped during the reported quarter. Moreover, Hologic has achieved its target of placing 60% of the 500−700 units by the end of fiscal 2012, and now expects the installed base in the US to nearly double in fiscal 2013.

After adjusting for the discontinuance of Adiana, the GYN Surgical business recorded growth of 17% year over year. The growth was attributable to strong performance of MyoSure systems with revenues increasing nearly thrice from the year-ago period. Moreover, owing to the recovery in NovaSure, this business recorded growth both year-over-year and sequentially.

Guidance

Hologic provided its guidance for the first quarter as well as fiscal 2013. For the said quarter, the company expects adjusted revenues of $640−$645 million (representing annualized growth of 35−36%) resulting in adjusted earnings of 37 cents per share, a penny lower than the current Zacks Consensus Estimate. The revenue guidance excludes an expected purchase accounting reduction of $17 million related to the Novartis collaboration and is higher than the current Zacks Consensus revenue estimate of $583 million.

For fiscal 2013, Hologic expects to report adjusted revenues of $2.61−$2.64 billion, representing 30−31% growth, resulting in adjusted EPS of $1.56−$1.58. While the revenue guidance excludes an expected purchase accounting reduction of $22 million related to the Novartis collaboration, the EPS outlook takes into account additional expected interest expense of $180 million related to the financing of the Gen-Probe acquisition and a $25 million charge for the medical device excise tax beginning January 1, 2013. While the revenue outlook surpassed the current Zacks Consensus Estimate of $2.3 billion, the EPS guidance fell short of the current consensus of $1.61.

Recommendation

We are encouraged by a strong quarter from Hologic amidst economic uncertainties in Europe, slower sales cycles and increasing pricing pressure. The increasing acceptance of the 3D Dimensions system is a cause to cheer. We are also encouraged with the improving growth in GYN Surgical, with increased focus on NovaSure and MyoSure systems. Offering a wide range of products, Hologic has become an industry giant in the field of women’s health.

With the Gen-Probe acquisition, Hologic has further strengthened its foothold in the HPV business. This specialized niche has players like Qiagen (QGEN - Analyst Report) among others. Moreover, an increasing debt burden along with higher interest expense will continue to affect the bottom line.

We have a Neutral recommendation on Hologic. The stock retains a Zacks #3 Rank (“Hold”) in the short term.

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