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LabCorp (LH) Q2 Earnings Miss Estimates, Margins Decline
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Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp reported second-quarter 2023 adjusted earnings per share (EPS) of $3.42, down 15.3% from the year-ago quarter’s figure. The adjusted figure excludes the impact of certain amortization expenses, restructuring charges, among others. The bottom line also missed the Zacks Consensus Estimate by 1.4%.
On a GAAP basis, net earnings in the second quarter were $1.74 per share compared with the year-ago figure of $2.89, reflecting 39.8% decline.
Revenues
Revenues in the quarter under review rose 3.8% year over year to $3.03 billion. The metric surpassed the Zacks Consensus Estimate by 1.6%.
The uptick in revenues can be attributed to a 2% rise in organic revenues, acquisitions, net of divestitures, of 1.6% and foreign currency translation of 0.2%. The rise in organic revenues was driven by 9.8% organic Base Business, partially offset by a (7.8%) decline in COVID-19 PCR and antibody testing (COVID-19 Testing).
Segments in Detail
The company currently operates under two segments — Diagnostics Laboratories and Biopharma Laboratory Services (comprised of its Central Laboratories and Early Development Research Laboratories).
For the second quarter, LabCorp Diagnostics reported revenues of $2.34 billion, reflecting a 3.8% rise year over year. On an organic basis, revenues were up 1.8%, partially offset by acquisitions growth of 2.2%. This increase in organic revenues resulted from a 11.9% rise in Base business, partially offset by a (10.1%) fall in COVID-19 Testing. This figure compares with our second quarter’s Diagnostics’ model’s projection of $2.26 billion.
The company’s Total volume (measured by requisitions) increased by 1.4% as acquisition volume contributed 2.5%, while organic volume declined (1.1%). Organic volume was impacted by a (6.1%) fall in COVID-19 testing, partially offset by a 5.1% increase in the Base business.
Laboratory Corporation of America Holdings Price, Consensus and EPS Surprise
Biopharma Laboratory Services revenues rose 3.1% to $699 million in the second quarter. The increase was primarily due to organic growth of 2.1% and foreign currency translation of 1.5%, partially offset by divestitures of (0.4%).
Margins
Gross margin contracted 448 basis points (bps) to 27.8% in the second quarter. Adjusted operating income declined 34% year over year to $336.4 million. Adjusted operating margin contracted 636 bps from the year-ago quarter to 11.1%.
Cash Position
LabCorp exited the second quarter of 2023 with cash and cash equivalents of $1.93 billion compared with $393.6 million at the end of first-quarter 2023.
Cumulative cash flow from operating activities at the end of the second quarter was $351.4 million, significantly down from $121.2 million at the end of first quarter 2023. Cumulative free cash flow at the end of the quarter under review was $177.4 million, down from $408.2 million a year ago.
2023 View
The company updated 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 1.5-3% (previous guidance was 1.5-4%). Base business growth is expected in the range of 11.3-12.6% (previous guidance was 9.5-11%). COVID-19 testing revenues are expected to decline in the range of 89-85% (previous guidance was 80-90%).
Total Diagnostics revenues are expected to grow in the range of down 0.5% to up 1.5% compared with the earlier guidance of down 0.5% to up 1%. Total Biopharma Laboratory Services revenues are now expected to rise in the range of 3-4.5% in 2023 (down from the earlier guidance of 3.5-5.5%).
The Zacks Consensus Estimate for full-year revenues is pegged at $12.00 billion.
The company expects full-year adjusted EPS in the band of $13-$14 (previous range was 16.25-17.75%). The Zacks Consensus Estimate for the metric is pegged at $13.96.
The company projects 2023 free cash flow figure in the range of $0.8-$1.0 billion.
Our Take
LabCorp ended the second quarter of 2023 on a mixed note with better-than-expected revenues but earnings lagging. The company’s revenues increased year-over-year led by rise in base business. In the second quarter, LabCorp continued to expand its relationship with hospitals, regional healthcare systems and local labs. The company completed its planned spin-off of the Clinical Development business.
On a year-over-year basis, Q2 adjusted EPS declined significantly. Revenues were impacted by a decline in COVID-19 testing, The significant contraction of both margins is discouraging.
Zacks Rank and Key Picks
LabCorp currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories (ABT - Free Report) , Elevance Health, Inc. (ELV - Free Report) and Intuitive Surgical, Inc. (ISRG - Free Report) .
Abbott, carrying a Zacks Rank of 2, reported second-quarter 2023 adjusted EPS of $1.08, beating the Zacks Consensus Estimate by 3.8%. Revenues of $9.98 billion outpaced the consensus mark by 2.9% You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 12.4%.
Elevance Health reported second-quarter 2023 adjusted EPS of $9.04, beating the Zacks Consensus Estimate by 2.5%. Revenues of $43.38 billion surpassed the Zacks Consensus Estimate by 4.5%. It currently carries a Zacks Rank #2.
Elevance Health has a long-term estimated growth rate of 12.1%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 2.8%.
Intuitive Surgical reported second-quarter 2023 adjusted EPS of $1.42, beating the Zacks Consensus Estimate by 7.6%. Revenues of $1.76 billion surpassed the Zacks Consensus Estimate by 1.4%. It currently carries a Zacks Rank #2.
Intuitive Surgical has a long-term estimated growth rate of 14.5%. ISRG’s earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 4.2%.
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LabCorp (LH) Q2 Earnings Miss Estimates, Margins Decline
Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp reported second-quarter 2023 adjusted earnings per share (EPS) of $3.42, down 15.3% from the year-ago quarter’s figure. The adjusted figure excludes the impact of certain amortization expenses, restructuring charges, among others. The bottom line also missed the Zacks Consensus Estimate by 1.4%.
On a GAAP basis, net earnings in the second quarter were $1.74 per share compared with the year-ago figure of $2.89, reflecting 39.8% decline.
Revenues
Revenues in the quarter under review rose 3.8% year over year to $3.03 billion. The metric surpassed the Zacks Consensus Estimate by 1.6%.
The uptick in revenues can be attributed to a 2% rise in organic revenues, acquisitions, net of divestitures, of 1.6% and foreign currency translation of 0.2%. The rise in organic revenues was driven by 9.8% organic Base Business, partially offset by a (7.8%) decline in COVID-19 PCR and antibody testing (COVID-19 Testing).
Segments in Detail
The company currently operates under two segments — Diagnostics Laboratories and Biopharma Laboratory Services (comprised of its Central Laboratories and Early Development Research Laboratories).
For the second quarter, LabCorp Diagnostics reported revenues of $2.34 billion, reflecting a 3.8% rise year over year. On an organic basis, revenues were up 1.8%, partially offset by acquisitions growth of 2.2%. This increase in organic revenues resulted from a 11.9% rise in Base business, partially offset by a (10.1%) fall in COVID-19 Testing. This figure compares with our second quarter’s Diagnostics’ model’s projection of $2.26 billion.
The company’s Total volume (measured by requisitions) increased by 1.4% as acquisition volume contributed 2.5%, while organic volume declined (1.1%). Organic volume was impacted by a (6.1%) fall in COVID-19 testing, partially offset by a 5.1% increase in the Base business.
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
Biopharma Laboratory Services revenues rose 3.1% to $699 million in the second quarter. The increase was primarily due to organic growth of 2.1% and foreign currency translation of 1.5%, partially offset by divestitures of (0.4%).
Margins
Gross margin contracted 448 basis points (bps) to 27.8% in the second quarter. Adjusted operating income declined 34% year over year to $336.4 million. Adjusted operating margin contracted 636 bps from the year-ago quarter to 11.1%.
Cash Position
LabCorp exited the second quarter of 2023 with cash and cash equivalents of $1.93 billion compared with $393.6 million at the end of first-quarter 2023.
Cumulative cash flow from operating activities at the end of the second quarter was $351.4 million, significantly down from $121.2 million at the end of first quarter 2023. Cumulative free cash flow at the end of the quarter under review was $177.4 million, down from $408.2 million a year ago.
2023 View
The company updated 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 1.5-3% (previous guidance was 1.5-4%). Base business growth is expected in the range of 11.3-12.6% (previous guidance was 9.5-11%). COVID-19 testing revenues are expected to decline in the range of 89-85% (previous guidance was 80-90%).
Total Diagnostics revenues are expected to grow in the range of down 0.5% to up 1.5% compared with the earlier guidance of down 0.5% to up 1%. Total Biopharma Laboratory Services revenues are now expected to rise in the range of 3-4.5% in 2023 (down from the earlier guidance of 3.5-5.5%).
The Zacks Consensus Estimate for full-year revenues is pegged at $12.00 billion.
The company expects full-year adjusted EPS in the band of $13-$14 (previous range was 16.25-17.75%). The Zacks Consensus Estimate for the metric is pegged at $13.96.
The company projects 2023 free cash flow figure in the range of $0.8-$1.0 billion.
Our Take
LabCorp ended the second quarter of 2023 on a mixed note with better-than-expected revenues but earnings lagging. The company’s revenues increased year-over-year led by rise in base business. In the second quarter, LabCorp continued to expand its relationship with hospitals, regional healthcare systems and local labs. The company completed its planned spin-off of the Clinical Development business.
On a year-over-year basis, Q2 adjusted EPS declined significantly. Revenues were impacted by a decline in COVID-19 testing, The significant contraction of both margins is discouraging.
Zacks Rank and Key Picks
LabCorp currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories (ABT - Free Report) , Elevance Health, Inc. (ELV - Free Report) and Intuitive Surgical, Inc. (ISRG - Free Report) .
Abbott, carrying a Zacks Rank of 2, reported second-quarter 2023 adjusted EPS of $1.08, beating the Zacks Consensus Estimate by 3.8%. Revenues of $9.98 billion outpaced the consensus mark by 2.9% You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 12.4%.
Elevance Health reported second-quarter 2023 adjusted EPS of $9.04, beating the Zacks Consensus Estimate by 2.5%. Revenues of $43.38 billion surpassed the Zacks Consensus Estimate by 4.5%. It currently carries a Zacks Rank #2.
Elevance Health has a long-term estimated growth rate of 12.1%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 2.8%.
Intuitive Surgical reported second-quarter 2023 adjusted EPS of $1.42, beating the Zacks Consensus Estimate by 7.6%. Revenues of $1.76 billion surpassed the Zacks Consensus Estimate by 1.4%. It currently carries a Zacks Rank #2.
Intuitive Surgical has a long-term estimated growth rate of 14.5%. ISRG’s earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 4.2%.