Hologic Incurs Loss, Eyes Gen-Probe - Analyst Blog
May 01 2012 - 8:00AM
Zacks
Hologic (HOLX)
reported a loss per share of 15 cents in the second quarter of
fiscal 2012 compared with earnings per share (“EPS”) of 31 cents in
the year-ago period. After taking into account certain one-time
items in both the periods, adjusted EPS came in at 33 cents, in
line with the Zacks Consensus Estimate and ahead of the year-ago
quarter’s 30 cents. Among several adjustments, adjusted EPS in the
reported quarter excludes charges of $18.3 million related to the
write-off of certain assets as a result of the company's decision
to cease commercialization of Adiana.
Revenues were $471.2 million, an
increase of 7.4% year over year driven by growth across all
segments. However, revenues were short of the Zacks Consensus
Estimate of $474 million and came in on the lower end of the
company’s guidance of $470–$475 million.
The company decided on
discontinuing Adiana because it found the product commercially not
viable. Instead Hologic preferred to focus on its core products.
The company also resolved the patent infringement litigation with
Conceptus (CPTS) by discontinuing Adiana in return
for the latter forgoing the $18.8 million jury award. In addition
to Hologic granting Conceptus a license to intellectual property
related to Adiana, the two companies have also agreed to dismiss
the false patent marking case between them.
Gen-Probe
Acquisition
In a separate statement, Hologic
announced that it has decided to acquire all outstanding shares of
Gen-Probe (GPRO), a player in the field of
molecular diagnostics, for $82.75 per share in cash, or a total
enterprise value of approximately $3.7 billion. The offer price
represents a 20% premium over Gen-Probe’s closing price on Friday.
The deal will be funded through available cash and additional
financing of term loans. The company exited the second quarter with
$855 million of cash and cash equivalents.
The transaction, to be completed in
the second half of calendar 2012, is expected to be accretive to
Hologic’s adjusted EPS by 20 cents in the first year after closure.
Apart from boosting both the top and the bottom line, the deal
would yield $75 million in cost synergies within three years. The
combined company will use its strong free cash flow to repay
outstanding debt.
Segments
Hologic operates through four
segments − Breast Health, Diagnostics, GYN (Gynecology) Surgical
and Skeletal Health − each contributing a corresponding 46.4%,
32.2%, 16.4% and 5% to total revenue during the quarter. These
segments recorded robust growth of 6.2% year over year (to $218.6
million), 9.8% ($151.8 million), 8% ($77.2 million) and 2% ($23.5
million), respectively.
The upside at the Breast Health
segment was driven by a shift in sales from Selenia to Dimensions,
sales of breast biopsy products led by Eviva and to a lesser extent
an increase in the total number of digital mammography systems
sold. In addition, a 7.1% rise in service revenue related to
Hologic’s increased installed base of digital mammography systems
also contributed to growth.
Growth at the Diagnostic segment
was driven by higher ThinPrep revenues and growth in sales of
molecular diagnostics products. Besides, incremental ThinPrep
revenue from the TCT acquisition is on an uptrend with $8.2 million
in the reported quarter, up from $7.3 million during the last
quarter.
The increase in GYN Surgical
revenues was primarily due to higher sales from MyoSure, partially
offset by lower sales of the NovaSure system and to a lesser
extent, Adiana. The increase in Skeletal Health revenues emanated
from higher sales of bone densitometry units, partially offset by a
decline in Mini C-Arm product sales.
In the recent past, Hologic has
received some significant product approvals. These include 510k
clearance for Aquilex fluid control system, which reduces procedure
and anesthesia time while providing high quality visualization to
the surgeon during hysteroscopy procedures. The company’s GYN
surgical sales force is working on its penetration in the US
market.
Besides, Hologic has begun
commercializing its C-View synthesized 2D image reconstruction
algorithm for 3D mammography exams in Europe following the receipt
of CE Mark approval in November 2011. The company is gradually
strengthening its presence in China with the commercialization of
Serenity digital mammography system and Cervista HPV HR tests in
the second quarter.
Guidance
Hologic provided its guidance for
the third quarter of fiscal 2012. For the said quarter, the company
expects to report $475−$480 million of revenues (representing
annualized growth of 5−6%) resulting in adjusted EPS of 34 cents, a
penny short of the current Zacks Consensus EPS Estimate. The
current Zacks Consensus revenue estimate stands at $482 million.
For fiscal 2012, Hologic still expects to report revenues of
$1.9−$1.925 billion (growth of 6−8%) while the adjusted EPS
guidance was raised by a penny at both ends to $1.36−$1.38.
Recommendation
Though the company reported an
uninspiring second quarter, the announcement of the Gen-Probe
acquisition was significant. If the deal goes through, the combined
company will become a prominent player in the HPV business, which
has players like Qiagen (QGEN). However, an
increasing debt burden along with higher interest expense will
adversely affect the bottom line. We are also disappointed with the
company’s decision to discontinue the Adiana system. The stock
retains a Zacks #4 Rank (“Sell”) in the short term.
Offering a wide range of products,
Hologic has become an industry giant in the field of women’s health
products. The proposed acquisition will further strengthen its
position in this field. We are also encouraged by the recent
product approvals, which should help the company in recording
higher sales going forward. Over the long term, we are Neutral on
Hologic.
CONCEPTUS INC (CPTS): Free Stock Analysis Report
GEN-PROBE INC (GPRO): Free Stock Analysis Report
HOLOGIC INC (HOLX): Free Stock Analysis Report
QIAGEN NV (QGEN): Free Stock Analysis Report
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