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Hologic (HOLX) Q4 Earnings & Revenues Top, Margins Down

Zacks

Hologic Inc. HOLX reported fourth-quarter fiscal 2017 adjusted earnings per share (EPS) of 50 cents, down 3.8% year over year. However, adjusted EPS beat the Zacks Consensus Estimate by a penny and remained at the upper end of the company’s guidance of 48-50 cents.

On a reported basis, the company recorded earnings of 29 cents per share, reflecting a year-over-year decline of 12.1%.

Revenues in Detail

Revenues grossed $802.9 million in the quarter, up 10.5% year over year (up 9.9% at constant exchange rate or CER). The top line also exceeded the Zacks Consensus Estimate of $793 million and the company’s own estimation of $785-$800 million.


Hologic, Inc. Price, Consensus and EPS Surprise

Hologic, Inc. Price, Consensus and EPS Surprise | Hologic, Inc. Quote

Solid double-digit growth at Hologic’s molecular diagnostics and international business drove this upside in the top line.

Geographically, revenues in the United States grew 6.1% year over year to $613 million. Excluding blood screening and medical aesthetics, U.S. revenues rose 1.4%. On the other hand, international revenues were up 27.5% (up 24.7% at CER) to $189.9 million, banking on a strong contribution from Cynosure. Excluding blood screening and medical aesthetics, international revenues increased 20.8% or 17.5% at constant currency.

Segments in Detail

Revenues at the Diagnostics segment (36.3% of total revenues) declined 6.5% year over year (down 7% at CER) to $291.7 million in the fourth quarter. Under this segment, Molecular Diagnostics revenues of $153.5 million increased 14.3% (13.8% at CER). The global growth in Molecular Diagnostics was primarily driven by an increasing market share and utilization of fully automated Panther system. Notably, by the end of 2017, Hologic had shipped about 1,300 Panthers to Diagnostics customers worldwide. This quarter marked the sixth consecutive period of double digit growth for Molecular Diagnostics, internationally.

Cytology and Perinatal revenues of $120.2 million also showed a decline of 0.7% (down 1.4% at CER).

Revenues at the Breast Health segment (37.5%) inched up 2.9% (up 2.4% at CER) to $300.9 million. Revenues in the United States slipped 1.2%. In the reported quarter, changes in product mix were partially offset by increases in service and new product revenues. International revenues however climbed 20.6% year over year at CER.

Revenues from the GYN Surgical business (13%) were up 3.2% (up 2.7% at CER) to $104.7 million. Medical Aesthetic business in the quarter reported revenues of $81.4 million, determining 10.1% of total revenues. Revenues at Skeletal Health (accounting for the rest) increased 14.2% (up12.9% at CER) to $24.2 million.

Operational Update

In the fiscal fourth quarter, Hologic’s gross margin contracted 390 basis points (bps) to 52%. Adjusted gross margin also decreased 160 bps to 64.1% due to divestiture of blood screening business and revenues from low-margin Cynosure products.

Hologic’s adjusted operating expenses amounted to $275.8 million, up 17.1% year over year. Adjusted operating margin contracted a massive 350 bps to 29.8%.

Financial Update

Hologic exited fiscal 2017 with cash and cash equivalents of $540.6 million, marginally below $548.4 billion, reported at the end of fiscal 2016. Total long-term debt was $3.32 billion at the end of this fiscal compared with $3.35 billion at the end of last fiscal.

Full-year operating cash flow was $8.3 million compared with the year-ago cash flow of $798.2 million.

Guidance

Hologic has provided its fiscal 2018 financial guidance. The company currently expects adjusted revenues to grow in the range of 4-6.6% at CER to $3.2-$3.28 billion. The current Zacks Consensus Estimate stands at $3.29, above the guided range

Adjusted EPS are expected to grow by 3.4-5.9% to $2.10-$2.15. The current Zacks Consensus Estimate for adjusted EPS is pegged at $2.14, falling just below the upper end of the guided range.

For first-quarter fiscal 2018, Hologic expects adjusted revenues of $775-$790 million, representing annualized growth of 5.5-7.6% at CER. The current Zacks Consensus Estimate for revenues is pegged at $806.4 million, ahead of the projected range.

Adjusted EPS is projected at 48-50 cents, reflecting an annualized decline of (7.7)-(3.8)%. The current Zacks Consensus Estimate for first-quarter adjusted EPS is pegged at 51 cents, above the company’s guidance.

Our Take

Hologic posted better-than-expected fourth-quarter fiscal 2017 results in terms of both earnings and revenues. Balanced growth across all geographical regions buoys optimism. However, we are disappointed with the decrease of revenues at the company’s Diagnostics segment. The blood screening divestiture is also likely to mar the company’s growth momentum in the days ahead.

Zacks Rank & Key Picks

Hologic carries a Zacks Rank #3 (Hold). A few better-ranked medical stocks are PetMed Express, Inc. PETS, Luminex Corporation LMNX and Intuitive Surgical, Inc. ISRG. While PetMed and Luminex sport a Zacks Rank #1 (Strong Buy), Intuitive Surgical carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed reported earnings per share of 43 cents in the second quarter of fiscal 2018, up 79.2% from the year-ago quarter’s 24 cents. Also, gross margin expanded 548 bps year over year to 35.2% in the reported quarter.

Luminex reported adjusted earnings per share of 19 cents in the third quarter of 2017, up 216.7% year over year. The company’s revenues in the quarter increased almost 4.1% year over year to $74.1 million.

Intuitive Surgical posted adjusted earnings of $2.77 per share in the third quarter of 2017, up 34.5% on a year-over-year basis. Also, revenues increased 18% year over year to $806.1 million.

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