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Labcorp (LH) Q3 Earnings and Revenues Beat, Margins Fall
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Laboratory Corporation of America Holdings (LH - Free Report) , or Labcorp, reported third-quarter 2023 adjusted earnings per share (EPS) of $3.38, down 15.7% from the year-ago quarter’s figure. The adjusted figure excludes the impact of certain amortization expenses and restructuring charges, among others. However, the bottom line beat the Zacks Consensus Estimate by 0.3%.
On a GAAP basis, net earnings in the third quarter were $2.11 per share compared with the year-ago figure of $3.90, reflecting a 45.9% decline.
Revenues
Revenues in the quarter under review rose 6.6% year over year to $3.06 billion. The metric surpassed the Zacks Consensus Estimate by 2.2%.
The uptick in revenues can be attributed to a 3.7% rise in organic revenues, acquisitions, net of divestitures, of 2.2% and foreign currency translation of 0.7%. The rise in organic revenues was driven by a 10.1% in the organic Base Business, partially offset by a 6.3% decline in COVID-19 PCR and antibody testing (COVID-19 Testing).
The company currently operates under two segments — LabcorpDiagnostics Laboratories and Labcorp Biopharma Laboratory Services (comprised of its Central Laboratories and Early Development Research Laboratories).
For the third quarter, Diagnostics Laboratories reported revenues of $2.34 billion, reflecting a 6.2% rise year over year. This compares with our model’s segmental projected revenues of $2.26 billion.
On an organic basis, revenues were up 3.4%, partially offset by a foreign currency translation of 0.1%. This increase in organic revenues resulted from an 11.6% rise in the Base business, partially offset by an 8.2% fall in COVID-19 Testing.
The company’s Total volumes (measured by requisitions) increased by 2.3% as acquisition volumes contributed 3.4%, while organic volumes declined 1.1%. Organic volumes were impacted by a 4.5% fall in COVID-19 testing, partially offset by a 3.4% increase in the Base business.
Biopharma Laboratory Services revenues rose 7.9% to $666.4 million in the third quarter. The year-over-year increase was primarily due to organic growth of 4.9% and foreign currency translation of 3.3%, partially offset by divestitures of 0.2%. Our model projected revenues from this segment to be $731.9 million in the third quarter.
Margins
The gross margin contracted 307 basis points (bps) to 27.9% in the third quarter. The adjusted operating income declined 25% year over year to $325.7 million. The adjusted operating margin contracted 444 bps from the year-ago quarter to 10.7%.
Cash Position
Labcorp exited the third quarter of 2023 with cash and cash equivalents of $727.9 million compared with $320.6 million as of Dec 31, 2022. Cumulative cash flow provided by operating activities at the end of the third quarter was $748.1 million compared to $1,302.3 million in the prior year’s comparable period.
2023 View
The company updated its 2023 guidance.
Total Labcorp Enterprise revenues (net of intersegment transaction eliminations) are expected to grow in the range of 1.9%-2.7% (previous guidance was 1.5%-3%).
Base business growth is expected in the range of 11.5%-12.2% (previous guidance was 11.3%-12.6%). COVID-19 testing revenues are expected to decline in the range of 86%-85% (previous guidance was 89%-85%).
Total Diagnostics revenues are expected to grow from down 1.5% to up 2% compared with the earlier guidance of down 0.5% to up 1.5%. Total Biopharma Laboratory Services revenues are now expected to rise in the range of 3.1%-4% in 2023 (earlier guidance was 3-4.5%).
The Zacks Consensus Estimate for full-year revenues is pegged at $12.08 billion.
The company expects full-year adjusted EPS in the band of $13.25-$13.75 (the previous range was $13-$14). The Zacks Consensus Estimate for the metric is pegged at $13.66.
The company projects 2023 free cash flow in the range of $0.85-$0.95 billion (earlier $0.8-$1 billion).
Our Take
Labcorp ended the third quarter of 2023 with earnings and revenues beating estimates. Diagnostics Laboratories and Biopharma Laboratory Services businesses demonstrated strong performance in the quarter.
The company continues to advance its hospital and health system strategy through strategic collaborations to enhance laboratory services for patients and providers. On Jun 30, Labcorp successfully completed the spinoff of its Clinical Development business, renamed Fortrea.
Meanwhile, the company posted a year-over-year decline in the adjusted EPS, which raises our concern. A reduction in COVID-19 Testing revenues and the mixed impact of the Ascension lab management agreement negatively weighed on the operating margin in the third quarter.
Inari Medical, carrying a Zacks Rank #2 (Buy), reported a second-quarter 2023 adjusted EPS of 4 cents, beating the Zacks Consensus Estimate by a staggering 128.6%. Revenues of $119 million outpaced the consensus estimate by 2.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Inari Medical has an estimated earnings growth rate of 725% for next year. Inari Medical’s earnings surpassed estimates in all the trailing four quarters, the average being 66.8%.
Insulet, carrying a Zacks Rank #2, reported a second-quarter 2023 adjusted EPS of 38 cents, which beat the Zacks Consensus Estimate by 58.3%. Revenues of $396.5 million outpaced the consensus estimate by 3.3%.
Insulet has an estimated long-term earnings growth rate of 41.5% compared with the industry’s 14.4% growth. PODD’s earnings surpassed estimates in all the trailing four quarters, the average being 126.9%.
HealthEquity reported second-quarter 2023 adjusted earnings of 53 cents, which beat the Zacks Consensus Estimate by 12.8%. Revenues of $243.5 million surpassed the Zacks Consensus Estimate by 1.9%. It currently has a Zacks Rank #2.
HealthEquity has an estimated long-term earnings growth rate of 23.5% compared with the industry’s 13.4% growth. HQY’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 13.03%.
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Labcorp (LH) Q3 Earnings and Revenues Beat, Margins Fall
Laboratory Corporation of America Holdings (LH - Free Report) , or Labcorp, reported third-quarter 2023 adjusted earnings per share (EPS) of $3.38, down 15.7% from the year-ago quarter’s figure. The adjusted figure excludes the impact of certain amortization expenses and restructuring charges, among others. However, the bottom line beat the Zacks Consensus Estimate by 0.3%.
On a GAAP basis, net earnings in the third quarter were $2.11 per share compared with the year-ago figure of $3.90, reflecting a 45.9% decline.
Revenues
Revenues in the quarter under review rose 6.6% year over year to $3.06 billion. The metric surpassed the Zacks Consensus Estimate by 2.2%.
The uptick in revenues can be attributed to a 3.7% rise in organic revenues, acquisitions, net of divestitures, of 2.2% and foreign currency translation of 0.7%. The rise in organic revenues was driven by a 10.1% in the organic Base Business, partially offset by a 6.3% decline in COVID-19 PCR and antibody testing (COVID-19 Testing).
Labcorp Price, Consensus and EPS Surprise
Labcorp price-consensus-eps-surprise-chart | Labcorp Quote
Segments in Detail
The company currently operates under two segments — Labcorp Diagnostics Laboratories and Labcorp Biopharma Laboratory Services (comprised of its Central Laboratories and Early Development Research Laboratories).
For the third quarter, Diagnostics Laboratories reported revenues of $2.34 billion, reflecting a 6.2% rise year over year. This compares with our model’s segmental projected revenues of $2.26 billion.
On an organic basis, revenues were up 3.4%, partially offset by a foreign currency translation of 0.1%. This increase in organic revenues resulted from an 11.6% rise in the Base business, partially offset by an 8.2% fall in COVID-19 Testing.
The company’s Total volumes (measured by requisitions) increased by 2.3% as acquisition volumes contributed 3.4%, while organic volumes declined 1.1%. Organic volumes were impacted by a 4.5% fall in COVID-19 testing, partially offset by a 3.4% increase in the Base business.
Biopharma Laboratory Services revenues rose 7.9% to $666.4 million in the third quarter. The year-over-year increase was primarily due to organic growth of 4.9% and foreign currency translation of 3.3%, partially offset by divestitures of 0.2%. Our model projected revenues from this segment to be $731.9 million in the third quarter.
Margins
The gross margin contracted 307 basis points (bps) to 27.9% in the third quarter. The adjusted operating income declined 25% year over year to $325.7 million. The adjusted operating margin contracted 444 bps from the year-ago quarter to 10.7%.
Cash Position
Labcorp exited the third quarter of 2023 with cash and cash equivalents of $727.9 million compared with $320.6 million as of Dec 31, 2022. Cumulative cash flow provided by operating activities at the end of the third quarter was $748.1 million compared to $1,302.3 million in the prior year’s comparable period.
2023 View
The company updated its 2023 guidance.
Total Labcorp Enterprise revenues (net of intersegment transaction eliminations) are expected to grow in the range of 1.9%-2.7% (previous guidance was 1.5%-3%).
Base business growth is expected in the range of 11.5%-12.2% (previous guidance was 11.3%-12.6%). COVID-19 testing revenues are expected to decline in the range of 86%-85% (previous guidance was 89%-85%).
Total Diagnostics revenues are expected to grow from down 1.5% to up 2% compared with the earlier guidance of down 0.5% to up 1.5%. Total Biopharma Laboratory Services revenues are now expected to rise in the range of 3.1%-4% in 2023 (earlier guidance was 3-4.5%).
The Zacks Consensus Estimate for full-year revenues is pegged at $12.08 billion.
The company expects full-year adjusted EPS in the band of $13.25-$13.75 (the previous range was $13-$14). The Zacks Consensus Estimate for the metric is pegged at $13.66.
The company projects 2023 free cash flow in the range of $0.85-$0.95 billion (earlier $0.8-$1 billion).
Our Take
Labcorp ended the third quarter of 2023 with earnings and revenues beating estimates. Diagnostics Laboratories and Biopharma Laboratory Services businesses demonstrated strong performance in the quarter.
The company continues to advance its hospital and health system strategy through strategic collaborations to enhance laboratory services for patients and providers. On Jun 30, Labcorp successfully completed the spinoff of its Clinical Development business, renamed Fortrea.
Meanwhile, the company posted a year-over-year decline in the adjusted EPS, which raises our concern. A reduction in COVID-19 Testing revenues and the mixed impact of the Ascension lab management agreement negatively weighed on the operating margin in the third quarter.
Zacks Rank and Key Picks
Labcorp currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the broader medical space are Inari Medical (NARI - Free Report) , Insulet (PODD - Free Report) and HealthEquity (HQY - Free Report) .
Inari Medical, carrying a Zacks Rank #2 (Buy), reported a second-quarter 2023 adjusted EPS of 4 cents, beating the Zacks Consensus Estimate by a staggering 128.6%. Revenues of $119 million outpaced the consensus estimate by 2.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Inari Medical has an estimated earnings growth rate of 725% for next year. Inari Medical’s earnings surpassed estimates in all the trailing four quarters, the average being 66.8%.
Insulet, carrying a Zacks Rank #2, reported a second-quarter 2023 adjusted EPS of 38 cents, which beat the Zacks Consensus Estimate by 58.3%. Revenues of $396.5 million outpaced the consensus estimate by 3.3%.
Insulet has an estimated long-term earnings growth rate of 41.5% compared with the industry’s 14.4% growth. PODD’s earnings surpassed estimates in all the trailing four quarters, the average being 126.9%.
HealthEquity reported second-quarter 2023 adjusted earnings of 53 cents, which beat the Zacks Consensus Estimate by 12.8%. Revenues of $243.5 million surpassed the Zacks Consensus Estimate by 1.9%. It currently has a Zacks Rank #2.
HealthEquity has an estimated long-term earnings growth rate of 23.5% compared with the industry’s 13.4% growth. HQY’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 13.03%.