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LabCorp (LH) Q4 Earnings Surpass Estimates, Margins Fall
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Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp reported fourth-quarter 2022 adjusted earnings per share (EPS) of $4.14, down 38.8% from the year-ago quarter’s figure. The adjusted figure excludes the impact of certain amortization expenses, restructuring charges, acquisition and disposition-related costs, gain on the sale of business and loss from venture fund investments, among others. The bottom line exceeded the Zacks Consensus Estimate by 1.9%.
On a GAAP basis, net earnings for the fourth quarter were 86 cents per share, significantly down from the year-ago figure of $5.75.
Full-year adjusted EPS was $19.94, a 30.1% plunge from the end of 2021. The metric, however, beat the Zacks Consensus Estimate by 0.6%.
Revenues
Revenues in the quarter under review fell 9.4% year over year to $3.67 billion and missed the Zacks Consensus Estimate by 2.1%.
The decline in revenues can be attributed to a 9.4% fall in organic revenues and a 1.3% negative impact from foreign currency translation. However, the downside was partially offset by 1.3% growth from acquisitions net of divestitures. The decline in organic revenues was due to a 13.4% fall in contribution from COVID-19 PCR and antibody testing (COVID-19 testing). However, this decline in COVID-19 Testing was partially offset by a 3.9% rise in the company's organic Base Business (business operation excluding the company’s COVID-19 testing).
Full-year revenues were $14.88 billion, reflecting a 7.7% decline from the comparable 2021 period. The metric missed the Zacks Consensus Estimate by 0.5%.
Segments in Detail
For the fourth quarter, LabCorp Diagnostics reported revenues of $2.29 billion, reflecting a 12.8% fall year over year. On an organic basis, revenues were down 14.3%, partially offset by acquisitions growth of 1.7%. This decline in organic revenues resulted from a 20.7% drop in contribution from COVID-19 Testing, partially offset by a 6.4% rise in Base Business. There was a 0.3% negative impact from foreign currency translation.
Laboratory Corporation of America Holdings Price, Consensus and EPS Surprise
The company witnessed an 11.8% fall in total volume (measured by requisition) on a 13.8% decline in organic volume and acquisition volume growth of 2%. Organic volume was primarily hampered by a 14.3% drop in COVID-19 Testing, partially offset by a 0.5% rise in Base Business.
Drug Development revenues fell 4.1% to $1.39 billion in the fourth quarter due to a 3.1% negative impact from foreign currency translation. There was 0.4% growth from acquisitions, offset by a 1.5% drop in organic Base Business revenues. There has been a 5% decline due to COVID-related work and the Ukraine/Russia crisis.
Margins
Gross margin contracted 750 basis points (bps) to 26.4% in the fourth quarter. Adjusted operating income declined 47.9% year over year to $433.3 million. Adjusted operating margin contracted 870 bps from the year-ago quarter to 11.8%.
Cash Position
LabCorp exited the fourth quarter of 2022 with cash and cash equivalents of $430 million compared with $1.47 billion at the end of 2021. Cumulative cash flow from operating activities at the end of the fourth quarter was $1.96 billion, significantly down from $3.11 billion a year ago. Additionally, cumulative free cash flow at the end of the quarter under review was $1.50 billion, down from $2.60 billion a year ago.
At the end of fourth-quarter 2022, LabCorp repurchased $300.0 million of stock, representing approximately 1.4 million shares. The company’s board of directors approved an additional $1.0 billion share repurchase authorization.
2023 View
The company provided its 2023 guidance.
Total LabCorp Enterprise revenues (net of intersegment transaction eliminations, including Drug Development COVID-19 testing revenues) are expected to grow in the range of 1-4%. Base Business growth is expected in the range of 8.5-10.5%. Meanwhile, COVID-19 testing revenues are expected to decline in the range of 75-90%.
Total Diagnostics revenues are expected to be down 2% to up 1.5%. Total Drug Development revenues are expected to rise in the range of 5-7% in 2023.
The Zacks Consensus Estimate for full-year revenues is pegged at $14.96 billion.
The company expects full-year adjusted EPS in the band of $16.00-$18.00. The Zacks Consensus Estimate for the metric is pegged at $17.67.
The company projects 2023 free cash flow figure in the range of $1-$1.2 billion.
Our Take
LabCorp ended the fourth quarter of 2022 with better-than-expected earnings but a revenue miss. On a year-over-year basis, Q4 revenues and adjusted EPS declined significantly. Organic revenues declined mainly due to a major decrease in COVID-19 PCR and antibody testing sales. Significant contraction of both margins is discouraging. The severe foreign exchange headwind, inflationary pressure and the ongoing Ukraine/Russia crisis continue to impact business performance.
Meanwhile, the company is accelerating the planned spin-off of its Clinical Development business (announced in July) and expects it to be completed in mid-2023.
Zacks Rank and Key Picks
LabCorp currently has a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader medical space that have announced quarterly results are Cardinal Health, Inc. (CAH - Free Report) , McKesson Corporation (MCK - Free Report) and Hologic, Inc. (HOLX - Free Report) .
Cardinal Health, currently carrying a Zacks Rank #2, reported second-quarter fiscal 2023 adjusted EPS of $1.32, beating the Zacks Consensus Estimate by 16.8%. Revenues of $51.47 billion outpaced the consensus mark by 2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cardinal Health has a long-term estimated growth rate of 11.6%. CAH’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average being 6.4%.
McKesson, with a Zacks Rank #2, reported third-quarter fiscal 2023 adjusted EPS of $6.90, which beat the Zacks Consensus Estimate by 8.8%. Revenues of $70.49 billion outpaced the consensus mark by 0.02%.
McKesson has a long-term estimated growth rate of 10.4%. MCK’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average being 3.4%.
Hologic reported first-quarter fiscal 2023 adjusted earnings of $1.07 per share, beating the Zacks Consensus Estimate by 18.9%. Revenues of $1.07 billion surpassed the Zacks Consensus Estimate by 9.5%. The company currently sports a Zacks Rank #1.
Hologic has a long-term estimated growth rate of 15.2%. HOLX’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 30.6%.
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LabCorp (LH) Q4 Earnings Surpass Estimates, Margins Fall
Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp reported fourth-quarter 2022 adjusted earnings per share (EPS) of $4.14, down 38.8% from the year-ago quarter’s figure. The adjusted figure excludes the impact of certain amortization expenses, restructuring charges, acquisition and disposition-related costs, gain on the sale of business and loss from venture fund investments, among others. The bottom line exceeded the Zacks Consensus Estimate by 1.9%.
On a GAAP basis, net earnings for the fourth quarter were 86 cents per share, significantly down from the year-ago figure of $5.75.
Full-year adjusted EPS was $19.94, a 30.1% plunge from the end of 2021. The metric, however, beat the Zacks Consensus Estimate by 0.6%.
Revenues
Revenues in the quarter under review fell 9.4% year over year to $3.67 billion and missed the Zacks Consensus Estimate by 2.1%.
The decline in revenues can be attributed to a 9.4% fall in organic revenues and a 1.3% negative impact from foreign currency translation. However, the downside was partially offset by 1.3% growth from acquisitions net of divestitures. The decline in organic revenues was due to a 13.4% fall in contribution from COVID-19 PCR and antibody testing (COVID-19 testing). However, this decline in COVID-19 Testing was partially offset by a 3.9% rise in the company's organic Base Business (business operation excluding the company’s COVID-19 testing).
Full-year revenues were $14.88 billion, reflecting a 7.7% decline from the comparable 2021 period. The metric missed the Zacks Consensus Estimate by 0.5%.
Segments in Detail
For the fourth quarter, LabCorp Diagnostics reported revenues of $2.29 billion, reflecting a 12.8% fall year over year. On an organic basis, revenues were down 14.3%, partially offset by acquisitions growth of 1.7%. This decline in organic revenues resulted from a 20.7% drop in contribution from COVID-19 Testing, partially offset by a 6.4% rise in Base Business. There was a 0.3% negative impact from foreign currency translation.
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
The company witnessed an 11.8% fall in total volume (measured by requisition) on a 13.8% decline in organic volume and acquisition volume growth of 2%. Organic volume was primarily hampered by a 14.3% drop in COVID-19 Testing, partially offset by a 0.5% rise in Base Business.
Drug Development revenues fell 4.1% to $1.39 billion in the fourth quarter due to a 3.1% negative impact from foreign currency translation. There was 0.4% growth from acquisitions, offset by a 1.5% drop in organic Base Business revenues. There has been a 5% decline due to COVID-related work and the Ukraine/Russia crisis.
Margins
Gross margin contracted 750 basis points (bps) to 26.4% in the fourth quarter. Adjusted operating income declined 47.9% year over year to $433.3 million. Adjusted operating margin contracted 870 bps from the year-ago quarter to 11.8%.
Cash Position
LabCorp exited the fourth quarter of 2022 with cash and cash equivalents of $430 million compared with $1.47 billion at the end of 2021. Cumulative cash flow from operating activities at the end of the fourth quarter was $1.96 billion, significantly down from $3.11 billion a year ago. Additionally, cumulative free cash flow at the end of the quarter under review was $1.50 billion, down from $2.60 billion a year ago.
At the end of fourth-quarter 2022, LabCorp repurchased $300.0 million of stock, representing approximately 1.4 million shares. The company’s board of directors approved an additional $1.0 billion share repurchase authorization.
2023 View
The company provided its 2023 guidance.
Total LabCorp Enterprise revenues (net of intersegment transaction eliminations, including Drug Development COVID-19 testing revenues) are expected to grow in the range of 1-4%. Base Business growth is expected in the range of 8.5-10.5%. Meanwhile, COVID-19 testing revenues are expected to decline in the range of 75-90%.
Total Diagnostics revenues are expected to be down 2% to up 1.5%. Total Drug Development revenues are expected to rise in the range of 5-7% in 2023.
The Zacks Consensus Estimate for full-year revenues is pegged at $14.96 billion.
The company expects full-year adjusted EPS in the band of $16.00-$18.00. The Zacks Consensus Estimate for the metric is pegged at $17.67.
The company projects 2023 free cash flow figure in the range of $1-$1.2 billion.
Our Take
LabCorp ended the fourth quarter of 2022 with better-than-expected earnings but a revenue miss. On a year-over-year basis, Q4 revenues and adjusted EPS declined significantly. Organic revenues declined mainly due to a major decrease in COVID-19 PCR and antibody testing sales. Significant contraction of both margins is discouraging. The severe foreign exchange headwind, inflationary pressure and the ongoing Ukraine/Russia crisis continue to impact business performance.
Meanwhile, the company is accelerating the planned spin-off of its Clinical Development business (announced in July) and expects it to be completed in mid-2023.
Zacks Rank and Key Picks
LabCorp currently has a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader medical space that have announced quarterly results are Cardinal Health, Inc. (CAH - Free Report) , McKesson Corporation (MCK - Free Report) and Hologic, Inc. (HOLX - Free Report) .
Cardinal Health, currently carrying a Zacks Rank #2, reported second-quarter fiscal 2023 adjusted EPS of $1.32, beating the Zacks Consensus Estimate by 16.8%. Revenues of $51.47 billion outpaced the consensus mark by 2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cardinal Health has a long-term estimated growth rate of 11.6%. CAH’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average being 6.4%.
McKesson, with a Zacks Rank #2, reported third-quarter fiscal 2023 adjusted EPS of $6.90, which beat the Zacks Consensus Estimate by 8.8%. Revenues of $70.49 billion outpaced the consensus mark by 0.02%.
McKesson has a long-term estimated growth rate of 10.4%. MCK’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average being 3.4%.
Hologic reported first-quarter fiscal 2023 adjusted earnings of $1.07 per share, beating the Zacks Consensus Estimate by 18.9%. Revenues of $1.07 billion surpassed the Zacks Consensus Estimate by 9.5%. The company currently sports a Zacks Rank #1.
Hologic has a long-term estimated growth rate of 15.2%. HOLX’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 30.6%.