Back to top

Analyst Blog

Hologic Inc. (HOLX - Analyst Report) reported adjusted earnings per share of 35 cents in the second quarter of fiscal 2013, higher than the year-ago earnings of 33 cents as well as the company’s expectations of 33−34 cents for the reported quarter. The result also beat the Zacks Consensus Estimate by a penny.

On a reported basis, net loss in the second quarter was $51.1 million or 19 cents per share, worse than the net loss of $40.3 million or 15 cents per share in the prior-year quarter.

Revenues were $612.7 million in the quarter, up 30% year over year. Despite solid growth, the top line was significantly below the Zacks Consensus Estimate of $644 million and company’s guidance range of $635−$640 million. Revenues exclude the $6.4 million of contingent revenue received under a collaboration agreement of Gen-Probe with Novartis. Hologic completed the acquisition of Gen-Probe on Aug 1, 2012. Revenue growth was led by inclusion of Gen-Probe revenues, higher sales of MyoSure and tomosynthesis systems and wider installed base of digital mammography systems.

Segments

Subsequent to the Gen-Probe deal, Diagnostics became the largest segment at Hologic (contributing 48.4% in the second quarter), and recording revenues of $296.5 million in the reported quarter compared with $151.8 million in the year-ago quarter. The upside was primarily due to the inclusion of Gen-Probe revenues for the full quarter, somewhat offset by lower ThinPrep sales.

The company’s other segments − Breast Health, GYN Surgical and Skeletal Health − recorded respective sales of $220.1 million (up 0.7% year over year), $73.7 million (down 4.5%) and $22.4 million (down 4.7%).

The upside at the Breast Health segment was driven by a 10.5%, increase in service revenues from the company's increasing installed base of digital mammography systems, partially offset by a 4.4% decline in product revenues. Hologic noted that the decline in mammography product revenues reflects the ongoing mix shift to the latest tomosynthesis systems from the company’s 2D Selenia and 2D Dimensions product lines. Sale of Hologic’s offering for breast biopsy – Eviva, also improved from the year-ago quarter.

The GYN Surgical business recorded decline on account of discontinuation of Adiana system, and slower NovaSure system sales despite higher sales of MyoSure systems. After adjusting for the discontinuation of Adiana, GYN Surgical revenues improved 1.4%. Despite higher C-arm sales in the quarter, revenues from Skeletal Health decreased due to lower sales of densitometry systems and lower service revenues.

Guidance

Hologic provided its guidance for the third quarter of fiscal 2013. For the said quarter, the company expects adjusted revenues of $625−$630 million (representing annualized growth of 33%−34%) resulting in adjusted earnings of 36−37 cents per share. The revenue guidance is lower than the current Zacks Consensus Estimate of $657 million whereas, the company’s earnings expectation is higher than the Zacks Consensus Estimate of 34 cents.

Hologic updated its fiscal 2013 revenue guidance. The company still expects to report adjusted revenues of $2.53−$2.55 billion compared with earlier outlook of $2.61−$2.64 billion. The updated guidance represents 26%−27% growth. The current Zacks Consensus Estimate of $2.63 billion lies outside the guidance range. The company also lowered its adjusted EPS guidance to $1.54−$1.56 (earlier guidance was $1.58−$1.60). The Zacks Consensus Estimate of $1.58 lies outside the guidance range.

Our View

Hologic was plagued by several challenges in the last quarter such as lower sales of legacy products, uncertainties in the European market, ThinPrep business disruption in China and slower sales cycle, thereby leading to choppy revenues which not only missed the Zacks Consensus Estimate but also the company’s expectations. If the downward revision of fiscal 2013 guidance is any indication, the ongoing concerns are likely to persist for the rest of the fiscal.

Despite the shortfall in revenues and lower revision of fiscal guidance, Hologic witnessed several upsides in the quarter such as strong uptake of tomosynthesis technology, timely progress to gain synergies from Gen-Probe acquisition, and competitive wins in key markets among others.

Offering a wide range of products, Hologic is arguably an industry leader in the field of women’s health. Going forward, we are optimistic about increasing uptake of the company’s technically advanced solutions.

The stock carries a Zacks Rank #3 (Hold). While we have a neutral stance on Hologic, other medical stocks such as Accuray Inc. (ARAY - Analyst Report), Intuitive Surgical Inc. (ISRG - Analyst Report) and Mindray Medical International Limited (MR - Analyst Report) warrant a look. These stocks carry a Zacks Rank #2 (Buy).

 

Please login to Zacks.com or register to post a comment.