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LabCorp (LH) Q1 Earnings Miss Estimates, Margins Decline
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Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp reported first-quarter 2023 adjusted earnings per share (EPS) of $3.82, down 37.5% from the year-ago quarter’s figure. The adjusted figure excludes the impact of certain amortization expenses, restructuring charges, among others. The bottom line also missed the Zacks Consensus Estimate by 4.3%.
On a GAAP basis, net earnings in the first quarter were $2.39 per share, significantly down from the year-ago figure of $5.23.
Revenues
Revenues in the quarter under review fell 3.1% year over year to $3.78 billion. The metric surpassed the Zacks Consensus Estimate by 0.9%.
The decline in revenues can be attributed to a 3.6% fall in organic revenues and a 0.7% negative impact from foreign currency translation. The downside was partially offset by a 1.2% growth from acquisitions net of divestitures. The drop in organic revenues was due to a 11.6% fall in contribution from COVID-19 PCR and antibody testing (COVID-19 testing). However, this decline in COVID-19 testing was partially offset by a 7.9% rise in the company's organic Base Business (business operation excluding the company’s COVID-19 testing).
Segments in Detail
For the first quarter, LabCorp Diagnostics reported revenues of $2.38 billion, reflecting a 2.9% fall year over year. On an organic basis, revenues were down 4.7%, partially offset by acquisitions growth of 2%. This decline in organic revenues resulted from a 18.4% drop in contribution from COVID-19 Testing, partially offset by a 13.7% rise in Base Business. There was a 0.3% negative impact from foreign currency translation.
The company witnessed 3.3% fall in total volume (measured by requisition) on a 5.6% decline in organic volume and acquisition volume growth of 2.3%. Organic volume was primarily hampered by a 12.7% drop in COVID-19 testing, partially offset by a 7.1% rise in Base Business.
Drug Development revenues fell 4% to $1.40 billion in the first quarter due to a 1.5% negative impact from foreign currency translation. There was 0.1% decline from acquisitions.
Margins
Gross margin contracted 582 basis points (bps) to 25.8% in the first quarter. Adjusted operating income declined 45.2% year over year to $421.1million. Adjusted operating margin contracted 857 bps from the year-ago quarter to 11.1%.
Cash Position
LabCorp exited the first quarter of 2023 with cash and cash equivalents of $393.9 million compared with $430 million at the end of fourth quarter 2022.
Laboratory Corporation of America Holdings Price, Consensus and EPS Surprise
Cumulative cash flow from operating activities at the end of the first quarter was $121.2 million, significantly down from $356 million a year ago. Cumulative free cash flow at the end of the quarter under review was $27.3 million, down from $238.88 million a year ago.
2023 View
The company updated its 2023 guidance.
Total LabCorp Enterprise revenues (net of intersegment transaction eliminations, including Drug Development COVID-19 testing revenues) are expected to grow in the range of 1.5-4% (previous guidance was 1-4%). Base Business growth is expected in the range of 9.5-11% (previous guidance was 8.5-10.5%). COVID-19 testing revenues are expected to decline in the range of 80-90% (previous guided range was 75-90%).
Total Diagnostics revenues are expected to be down 0.5% to up 2% compared with the earlier guidance of down 2% to up 1.5%. Total Drug Development revenues are now expected to rise in the range of 3.5-5.5% in 2023 (down from the earlier guidance of 5-7%).
The Zacks Consensus Estimate for full-year revenues is pegged at $15.18 billion.
The company expects full-year adjusted EPS in the band of $16.25-$17.75 (previous range was 16-18%). The Zacks Consensus Estimate for the metric is pegged at $17.18.
The company projects 2023 free cash flow figure in the range of $1-$1.2 billion.
Our Take
LabCorp ended the first quarter of 2023 on a mixed note with better-than-expected revenues but earnings lagging. On a year-over-year basis, Q1 revenues and adjusted EPS declined significantly. Organic revenues declined mainly due to a major decrease in COVID-19 PCR and antibody testing sales. Significant contraction of both margins is discouraging.
LabCorp continued integrating the Ascension health system laboratories during the first quarter of 2023. The company is progressing well with its planned spin-off of the Clinical Development business, which is expected to be completed in mid-2023, subject to satisfaction of certain customary conditions.
Zacks Rank and Upcoming Releases
LabCorp currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space are Bio-Rad Laboratories (BIO - Free Report) , Henry Schein, Inc. (HSIC - Free Report) and Avanos Medical, Inc. (AVNS - Free Report) .
Bio-Rad Laboratories (BIO - Free Report) carrying a Zacks Rank of 2 (Buy) at present is expected to release first quarter 2023 earnings on May 4. BIO has an earnings yield of 3.3%, which compares favorably with the industry’s negative yield of 2.9%.
BioRad Laboratories’ earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 27.54%.
Henry Schein, carrying a Zacks Rank #2, is expected to release first quarter 2023 earnings on May 2. HSIC has an estimated long-term growth rate of 8.1%. HSIC’s earnings surpassed estimates in three of the trailing four quarters and matched the same in the other, the average beat being 2.9%.
Henry Schein has gained 22.2% compared with the industry’s 19.7% rise in the past six months.
Avanos, carrying a Zacks Rank #2, is expected to release first quarter 2023 earnings on May 3. AVNS has an estimated growth rate of 1.8% for 2023. AVNS’ earnings surpassed estimates in all the trailing four quarters, the average beat being 11%.
Avanos has gained 46.3% compared with the industry’s 17.5% rise in the past six months.
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LabCorp (LH) Q1 Earnings Miss Estimates, Margins Decline
Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp reported first-quarter 2023 adjusted earnings per share (EPS) of $3.82, down 37.5% from the year-ago quarter’s figure. The adjusted figure excludes the impact of certain amortization expenses, restructuring charges, among others. The bottom line also missed the Zacks Consensus Estimate by 4.3%.
On a GAAP basis, net earnings in the first quarter were $2.39 per share, significantly down from the year-ago figure of $5.23.
Revenues
Revenues in the quarter under review fell 3.1% year over year to $3.78 billion. The metric surpassed the Zacks Consensus Estimate by 0.9%.
The decline in revenues can be attributed to a 3.6% fall in organic revenues and a 0.7% negative impact from foreign currency translation. The downside was partially offset by a 1.2% growth from acquisitions net of divestitures. The drop in organic revenues was due to a 11.6% fall in contribution from COVID-19 PCR and antibody testing (COVID-19 testing). However, this decline in COVID-19 testing was partially offset by a 7.9% rise in the company's organic Base Business (business operation excluding the company’s COVID-19 testing).
Segments in Detail
For the first quarter, LabCorp Diagnostics reported revenues of $2.38 billion, reflecting a 2.9% fall year over year. On an organic basis, revenues were down 4.7%, partially offset by acquisitions growth of 2%. This decline in organic revenues resulted from a 18.4% drop in contribution from COVID-19 Testing, partially offset by a 13.7% rise in Base Business. There was a 0.3% negative impact from foreign currency translation.
The company witnessed 3.3% fall in total volume (measured by requisition) on a 5.6% decline in organic volume and acquisition volume growth of 2.3%. Organic volume was primarily hampered by a 12.7% drop in COVID-19 testing, partially offset by a 7.1% rise in Base Business.
Drug Development revenues fell 4% to $1.40 billion in the first quarter due to a 1.5% negative impact from foreign currency translation. There was 0.1% decline from acquisitions.
Margins
Gross margin contracted 582 basis points (bps) to 25.8% in the first quarter. Adjusted operating income declined 45.2% year over year to $421.1million. Adjusted operating margin contracted 857 bps from the year-ago quarter to 11.1%.
Cash Position
LabCorp exited the first quarter of 2023 with cash and cash equivalents of $393.9 million compared with $430 million at the end of fourth quarter 2022.
Laboratory Corporation of America Holdings Price, Consensus and EPS Surprise
Laboratory Corporation of America Holdings price-consensus-eps-surprise-chart | Laboratory Corporation of America Holdings Quote
Cumulative cash flow from operating activities at the end of the first quarter was $121.2 million, significantly down from $356 million a year ago. Cumulative free cash flow at the end of the quarter under review was $27.3 million, down from $238.88 million a year ago.
2023 View
The company updated its 2023 guidance.
Total LabCorp Enterprise revenues (net of intersegment transaction eliminations, including Drug Development COVID-19 testing revenues) are expected to grow in the range of 1.5-4% (previous guidance was 1-4%). Base Business growth is expected in the range of 9.5-11% (previous guidance was 8.5-10.5%). COVID-19 testing revenues are expected to decline in the range of 80-90% (previous guided range was 75-90%).
Total Diagnostics revenues are expected to be down 0.5% to up 2% compared with the earlier guidance of down 2% to up 1.5%. Total Drug Development revenues are now expected to rise in the range of 3.5-5.5% in 2023 (down from the earlier guidance of 5-7%).
The Zacks Consensus Estimate for full-year revenues is pegged at $15.18 billion.
The company expects full-year adjusted EPS in the band of $16.25-$17.75 (previous range was 16-18%). The Zacks Consensus Estimate for the metric is pegged at $17.18.
The company projects 2023 free cash flow figure in the range of $1-$1.2 billion.
Our Take
LabCorp ended the first quarter of 2023 on a mixed note with better-than-expected revenues but earnings lagging. On a year-over-year basis, Q1 revenues and adjusted EPS declined significantly. Organic revenues declined mainly due to a major decrease in COVID-19 PCR and antibody testing sales. Significant contraction of both margins is discouraging.
LabCorp continued integrating the Ascension health system laboratories during the first quarter of 2023. The company is progressing well with its planned spin-off of the Clinical Development business, which is expected to be completed in mid-2023, subject to satisfaction of certain customary conditions.
Zacks Rank and Upcoming Releases
LabCorp currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space are Bio-Rad Laboratories (BIO - Free Report) , Henry Schein, Inc. (HSIC - Free Report) and Avanos Medical, Inc. (AVNS - Free Report) .
Bio-Rad Laboratories (BIO - Free Report) carrying a Zacks Rank of 2 (Buy) at present is expected to release first quarter 2023 earnings on May 4. BIO has an earnings yield of 3.3%, which compares favorably with the industry’s negative yield of 2.9%.
BioRad Laboratories’ earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 27.54%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Henry Schein, carrying a Zacks Rank #2, is expected to release first quarter 2023 earnings on May 2. HSIC has an estimated long-term growth rate of 8.1%. HSIC’s earnings surpassed estimates in three of the trailing four quarters and matched the same in the other, the average beat being 2.9%.
Henry Schein has gained 22.2% compared with the industry’s 19.7% rise in the past six months.
Avanos, carrying a Zacks Rank #2, is expected to release first quarter 2023 earnings on May 3. AVNS has an estimated growth rate of 1.8% for 2023. AVNS’ earnings surpassed estimates in all the trailing four quarters, the average beat being 11%.
Avanos has gained 46.3% compared with the industry’s 17.5% rise in the past six months.