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LabCorp's (LH) Q1 Earnings Beat Estimates, Margins Down
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Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp reported first-quarter 2020 adjusted earnings per share (EPS) of $2.37, down 9.5% from the year-ago quarter. The adjusted figure was negatively impacted by an estimated 55 cents per share due to the COVID-19 pandemic. However, the bottom line surpassed the Zacks Consensus Estimate by 12.9%.
The quarter’s adjustments exclude non-recurring items like Restructuring and other charges in connection with LaunchPad initiatives and acquisitions or dispositions of businesses.
On a reported basis, net loss was $3.27 per share, a significant decline from net earnings of $1.88 in the year-ago period.
Revenues in the quarter under review improved 1.2% year over year to $2.82 billion and exceeded the Zacks Consensus Estimate by 3.9%.
The upside in revenues was driven by acquisition-related growth of 3.4%, partially offset by a 0.5% decline in revenues from the disposition of a business and 1.8% decline in organic revenues. The lower organic revenues could be attribute toa 4.9% adverse impact of COVID-19 and 0.7% negative impact of lower Medicare and Medicaid pricing as a result of implementation of Protecting Access to Medicare Act (PAMA).
Quarter in Detail
LabCorp reports results under two operating segments — LabCorp Diagnostics and Covance Drug Development.
In the first quarter, LabCorp Diagnostics reported revenues of $1.70 billion, reflecting 1.2% decline year over year. On an organic basis, revenues declined 2.9%. This included a 5.4% negative impact from COVID-19 and a 1.1% adverse impact of PAMA. Organic revenue decline was partially offset by acquisitions-related growth of 1.7%.
Laboratory Corporation of America Holdings Price, Consensus and EPS Surprise
The company witnessed a 4.4% decline in total volume (measured by requisition). Organic volume declined 6.1%, primarily on 7.3% negative impact from COVID-19 due to 50% to 55% reduced demand for testing compared to LabCorp’s normal daily levels. This was, however, marginally offset by an increase in demand for COVID-19 tests. There was 3.4% improvement in revenue per requisition in the first quarter.
Covance Drug Development revenues improved 6.4% to $1.14 billion in the first quarter buoyed by 6.2% contribution from acquisitions and 1.6% organic growth, partially offset by 1.2% impact owing to the disposition of the Covance Research Products business and 0.1% impact of adverse foreign currency translation.
Margins
Gross margin contracted 251 basis points (bps) to 25.8% in the first quarter. Also, adjusted operating income declined 16% year over year to $333 million. However, adjusted operating margin contracted 241 bps from the year-ago quarter to 11.8%.
Cash Position
LabCorp exited the first quarter with cash and cash equivalents of $323.6 million compared with $337.5 million at the end of 2019. Cash flow from operating activities at the end of the first quarter was $203.8 million, up from $165.8 million a year ago. Additionally, free cash flow at the end of the quarter was $97 million, up 36% from the year-ago period.
In the first quarter, the company returned $100 million to shareholders via share repurchases. However, amid the pandemic, it has temporarily suspended its existing share repurchase program.
2020 View
The company has withdrawn its 2020 guidance as it is currently unable to gauge the impact of the ongoing COVID-19 pandemic. However, it expects to deliver solid free cash flow in 2020.
Our Take
LabCorp exited the first quarter of 2020 with better-than-expected earnings and revenues. Diagnostics business in the quarter was down on severe volume decline as a result of negative impact of COVID-19. Also, the disposition of certain businesses and the implementation of PAMA dented growth.This was however marginally offset by an increase in demand for COVID-19 tests.
Also, Covance Drug Development delivered year-over-year growth despite COVID-19 hurdles on synergies from acquisitions and organic growth.
The Zacks Consensus Estimate for ResMed’s third-quarter fiscal 2020 revenues is pegged at $715.6 million, suggesting year-over-year improvement of 8.1%. The same for EPS stands at $1, indicating growth of 12.4% from the year-ago reported figure.
The Zacks Consensus Estimate for Aphria’s fourth-quarter fiscal 2020 revenues is $100.3 million, implying 4.4% increase from the year-earlier reported figure.
The Zacks Consensus Estimate for ViewRay’s first-quarter 2020 bottom line stands at a loss of 20 cents per share, suggesting 41.2% improvement from the year-ago quarter.
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LabCorp's (LH) Q1 Earnings Beat Estimates, Margins Down
Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp reported first-quarter 2020 adjusted earnings per share (EPS) of $2.37, down 9.5% from the year-ago quarter. The adjusted figure was negatively impacted by an estimated 55 cents per share due to the COVID-19 pandemic. However, the bottom line surpassed the Zacks Consensus Estimate by 12.9%.
The quarter’s adjustments exclude non-recurring items like Restructuring and other charges in connection with LaunchPad initiatives and acquisitions or dispositions of businesses.
On a reported basis, net loss was $3.27 per share, a significant decline from net earnings of $1.88 in the year-ago period.
Revenues in the quarter under review improved 1.2% year over year to $2.82 billion and exceeded the Zacks Consensus Estimate by 3.9%.
The upside in revenues was driven by acquisition-related growth of 3.4%, partially offset by a 0.5% decline in revenues from the disposition of a business and 1.8% decline in organic revenues. The lower organic revenues could be attribute toa 4.9% adverse impact of COVID-19 and 0.7% negative impact of lower Medicare and Medicaid pricing as a result of implementation of Protecting Access to Medicare Act (PAMA).
Quarter in Detail
LabCorp reports results under two operating segments — LabCorp Diagnostics and Covance Drug Development.
In the first quarter, LabCorp Diagnostics reported revenues of $1.70 billion, reflecting 1.2% decline year over year. On an organic basis, revenues declined 2.9%. This included a 5.4% negative impact from COVID-19 and a 1.1% adverse impact of PAMA. Organic revenue decline was partially offset by acquisitions-related growth of 1.7%.
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
The company witnessed a 4.4% decline in total volume (measured by requisition). Organic volume declined 6.1%, primarily on 7.3% negative impact from COVID-19 due to 50% to 55% reduced demand for testing compared to LabCorp’s normal daily levels. This was, however, marginally offset by an increase in demand for COVID-19 tests. There was 3.4% improvement in revenue per requisition in the first quarter.
Covance Drug Development revenues improved 6.4% to $1.14 billion in the first quarter buoyed by 6.2% contribution from acquisitions and 1.6% organic growth, partially offset by 1.2% impact owing to the disposition of the Covance Research Products business and 0.1% impact of adverse foreign currency translation.
Margins
Gross margin contracted 251 basis points (bps) to 25.8% in the first quarter. Also, adjusted operating income declined 16% year over year to $333 million. However, adjusted operating margin contracted 241 bps from the year-ago quarter to 11.8%.
Cash Position
LabCorp exited the first quarter with cash and cash equivalents of $323.6 million compared with $337.5 million at the end of 2019. Cash flow from operating activities at the end of the first quarter was $203.8 million, up from $165.8 million a year ago. Additionally, free cash flow at the end of the quarter was $97 million, up 36% from the year-ago period.
In the first quarter, the company returned $100 million to shareholders via share repurchases. However, amid the pandemic, it has temporarily suspended its existing share repurchase program.
2020 View
The company has withdrawn its 2020 guidance as it is currently unable to gauge the impact of the ongoing COVID-19 pandemic. However, it expects to deliver solid free cash flow in 2020.
Our Take
LabCorp exited the first quarter of 2020 with better-than-expected earnings and revenues. Diagnostics business in the quarter was down on severe volume decline as a result of negative impact of COVID-19. Also, the disposition of certain businesses and the implementation of PAMA dented growth.This was however marginally offset by an increase in demand for COVID-19 tests.
Also, Covance Drug Development delivered year-over-year growth despite COVID-19 hurdles on synergies from acquisitions and organic growth.
Zacks Rank
LabCorp currently has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space are ResMed Inc. (RMD - Free Report) , Aphria Inc. and ViewRay, Inc. . All the three stocks carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for ResMed’s third-quarter fiscal 2020 revenues is pegged at $715.6 million, suggesting year-over-year improvement of 8.1%. The same for EPS stands at $1, indicating growth of 12.4% from the year-ago reported figure.
The Zacks Consensus Estimate for Aphria’s fourth-quarter fiscal 2020 revenues is $100.3 million, implying 4.4% increase from the year-earlier reported figure.
The Zacks Consensus Estimate for ViewRay’s first-quarter 2020 bottom line stands at a loss of 20 cents per share, suggesting 41.2% improvement from the year-ago quarter.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?
Last year's 2019 Zacks Top 10 Stocks portfolio returned gains as high as +102.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2020 today >>