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LabCorp (LH) Q4 Earnings Beat Estimates, '18 View Promising

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Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp reported fourth-quarter 2017 adjusted earnings per share (EPS) of $2.45, up 13.9% from the year-ago quarter. The bottom line also exceeded the Zacks Consensus Estimate by 3.4%. One-time benefit related to the Tax Cuts and Jobs Act in the reported quarter, affected adjusted EPS by 5 cents, approximately.

On a reported basis, LabCorp’s net earnings came in at $6.81 per share as compared to $1.75 in the year-ago period.

Full-year adjusted EPS was $9.60, missing the Zacks Consensus Estimate of $10.19. However, the metric registered 8.7% growth over the year-ago adjusted number.

Net revenues for the fourth quarter increased 13.2% year over year to $2.70 billion. However, the top line lagged the Zacks Consensus Estimate of $2.71 billion by a close margin.

The year-over-year rise in net revenues was owing to 10% growth from acquisitions, organic growth (net revenue growth minus revenues from acquisitions for the first twelve months after the close of each acquisition) of 2.6% and a benefit of approximately 60 basis points from foreign currency translation.

 

Net revenues for the year 2017 were $10.21 billion, up 8.2% over the preceding year’s number. The metric is also ahead of the Zacks Consensus Estimate of $10.19 billion by 0.2%.

Quarter Under Review

LabCorp reports under two operating segments: LabCorp Diagnostics and Covance Drug Development.

In the reported quarter, LabCorp Diagnostics reported net revenues of $1.82 billion, up 8.6% year over year, fueled by tuck-in acquisitions, organic volume (measured by requisitions excluding requisitions from acquisitions for the first 12 months after the completion of each acquisition) and a gain from foreign currency translation of roughly 30 basis points. The company reported a 6.6% rise in total volume (measured by requisition) and a 1.8% increase in revenue per requisition in the concerning quarter.

After several quarters of drag in sales, Covance Drug Development reported a 23.8% rise in net revenues to $886.1 million in the fourth quarter. This upside was primarily on the back of Chiltern buyout, organic growth and the foreign currency translation benefit of nearly 140 basis points.

Gross margin deteriorated 92 bps to 30.4% in the reported quarter. Adjusted operating income declined 3.6% year over year to $328.6 million. Adjusted operating margin contracted 212 bps from the year-ago quarter to 12.2% on a 21.1% rise in selling, general and administrative expenses to $492.4 million.

LabCorp exited the year 2017 with cash and cash equivalents of $316.7 million compared with $433.6 million at the end of 2016. Full-year operating cash flow was $564 million, 25.6% up from $448.9 million in the year-ago period. Free cash flow came in at $1.1 billion in 2017, up 28% from the year-ago quarter. During the quarter under discussion, the company returned $40 million to shareholders via share repurchases and has shares worth $407.4 million, remaining under its existing authorized share repurchase plan.

Outlook

LabCorp has provided its 2018 guidance.

Revenue growth is expected to remain in the band of 9.5-11.5% from 2017 including a likely improvement of 60 bps from a foreign currency translation. The Zacks Consensus Estimate for current-year revenues is pegged at $11.06 billion.

Adjusted EPS guidance for 2018 has been projected in the range of $11.30-$11.70. The consensus mark of $10.67 for the metric falls below the guided range.

Free cash flow has been anticipated within $1.1-$1.2 billion, growth in the band of 0-9.1% from the prior year.

Our Take

LabCorp posted a mixed fourth-quarter performance with adjusted earnings topping the Zacks Consensus Estimate and net revenues falling short of the mark. On a positive note, strong year-over-year growth in both earnings and revenues were encouraging. LabCorp Diagnostics business was solid on the back of increasing acquisitions, organic volume expansion and a favorable foreign exchange scenario.

Also, after several quarters of dull performance, Covance Drug Development has been reporting sturdy growth over the past couple of terms. This uptrend was primarily owing to the Chiltern takeover, robust organic growth and a positive foreign currency translation. The 2018 guidance also looks promising.

We believe that with the integration of newer acquisitions, LabCorp is perfectly positioned to drive long-term profitable growth through a combination of world-class diagnostics, drug development expertise and knowledge services.

Zacks Rank & Key Picks

LabCorp has a Zacks Rank #3 (Hold). A few better-ranked stocks having reported solid results this earnings season are PetMed Express (PETS - Free Report) , PerkinElmer (PKI - Free Report) and ResMed (RMD - Free Report) . While PetMed sports a Zacks Rank #1 (Strong Buy), PerkinElmer and ResMed carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed recently reported third-quarter fiscal 2018 results. Adjusted earnings per share of 44 cents were up 88.3% from the prior-year quarter. Revenues rose 13.7% on a year-over-year basis to $60.1 million.

PerkinElmer reported fourth-quarter 2017 adjusted earnings per share of 97 cents. Adjusted revenues were approximately $641.6 million, up from $567 million in the year-ago quarter.

ResMed posted second-quarter fiscal 2018 adjusted earnings per share of $1, up 36.9% from the prior-year quarter. Revenues increased 13.4% year over year (up 11% at constant exchange rate or CER) to $601.3 million.

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