Hologic Beats by a Penny, Sales Lag - Analyst Blog
July 31 2012 - 10:30AM
Zacks
Hologic (HOLX)
reported net income of $23.6 million or 9 cents per share in the
third quarter of fiscal 2012 compared with $36.2 million or 14
cents per share. After taking into account certain one-time items,
adjusted earnings per share (‘EPS’) came in at 35 cents, a penny
ahead of the Zacks Consensus Estimate and beating the adjusted EPS
of 32 cents in the year-ago period.
Revenues were $470.2 million, an
increase of 4.2% year over year but were short of the Zacks
Consensus Estimate of $477 million. Reported revenues lagged the
low-end of the company’s guidance range of $475–$480 million.
Hologic had reported preliminary third-quarter results earlier this
month.
Segments
Hologic operates through four
segments − Breast Health, Diagnostics, GYN (Gynecology) Surgical
and Skeletal Health − with each contributing a corresponding 45%,
34%, 16% and 5% to total revenue during the quarter. These segments
recorded respective sales of $211.5 million (up 3.1% year over
year), $158.7 million (up 10.6%), $77.7 million (down 2.1%) and
$22.4 million (down 3.1%).
The upside at the Breast Health
segment was driven by an increase in service revenues related to
the growing installed base of digital mammography systems,
specifically 2D and 3D Dimensions systems. While we are impressed
with the step up in orders for the 3D platform, some orders could
not be shipped during the reported quarter due to some additional
requirements at the customer site thereby delaying installation. As
a result, the backlog of orders increased at the end of the quarter
on a sequential basis. Meanwhile, Hologic has reached over 45% of
its goal of placing 500−700 3D systems in US within two years of
launch and is on track to achieve the 60% level by the end of the
current fiscal.
Growth at the Diagnostic segment
was driven by higher ThinPrep revenues and sales of molecular
diagnostics products. Besides, incremental ThinPrep revenue from
the TCT acquisition amounted to $8.3 million in the reported
quarter, up nominally from $8.2 million during the last quarter.
Earlier this month, Hologic’s Cervista HPV HR test received
approval in the Netherlands.
The drop in GYN Surgical revenues
was primarily due to lower sales of NovaSure and Adiana systems,
offset by growth in MyoSure system sales that nearly tripled
compared to last year. However, after adjusting for the
discontinuance of Adiana, sales recorded 3% growth year over year
and 4% sequentially. As a reminder, the company had decided to
discontinue the product line in the last quarter as it was not
found to be commercially viable and preferred to focus on its core
products. We are encouraged by the focus of the sales force on
NovaSure that resulted in 3% sequential growth during the
quarter.
The decline in Skeletal Health
revenues emanated from lower sales of bone densitometry units,
partially offset by increase in Mini C-Arm product sales.
Gen-Probe
Update
Hologic announced that it has
received all regulatory approvals and is in the process of
arranging debt financing for the acquisition of
Gen-Probe (GPRO), a player in the field of
molecular diagnostics. The transaction is expected to be closed
shortly.
Guidance
Hologic provided its guidance for
the fourth quarter of fiscal 2012. For the said quarter, the
company expects to report $485 million of revenues (representing
annualized growth of 4%) resulting in adjusted EPS of 35−36 cents,
in line with the current Zacks Consensus EPS Estimate. The current
Zacks Consensus revenue estimate stands at $490 million, higher
than the company’s outlook.
Hologic reiterated its fiscal 2012
outlook for both revenues and EPS. The company expects to report
revenues of $1.9 billion representing 6% growth with adjusted EPS
in a band of $1.36−$1.38.
Recommendation
Hologic witnessed a challenging
third quarter with the economic uncertainties in Europe, slower
sales cycles and increasing pricing pressure. Apart from margin
erosion on European sales, revenues were impacted by more than $4
million because of these headwinds. We are concerned about the
economic environment with barely any recovery expected in the near
term.
However, the increasing acceptance
of the 3D Dimensions system is a cause to cheer. We also
believe that revenues from GYN Surgical should improve in the
forthcoming period with increased focus on NovaSure and MyoSure
systems. Offering a wide range of products, Hologic has become an
industry giant in the field of women’s health.
We are also bullish about the
proposed Gen-Probe acquisition, which will strengthen the company’s
foothold in the HPV business. This specialized niche has players
like Qiagen (QGEN) among others. However, an
increasing debt burden along with higher interest expense will
continue to affect the bottom line.
We have a Neutral recommendation on
Hologic. The stock retains a Zacks #3 Rank (“Hold”) in the short
term.
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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