LabCorp (LH) Q2 Earnings Top Estimates, Raises '22 EPS View

Laboratory Corporation of America Holdings LH or LabCorp reported second-quarter 2022 adjusted earnings per share (EPS) of $4.96, down 19.1% from the year-ago quarter’s figure of $6.13. The adjusted figure excludes the impact of adjustments to operating income and loss from venture fund investments, among others. The bottom line surpassed the Zacks Consensus Estimate by 6.2%.

On a GAAP basis, net earnings for the second quarter were $3.87 per share, down 18.7% year over year.

Revenues

Revenues in the quarter under review fell 3.7% year over year to $3.70 billion. It missed the Zacks Consensus Estimate by 3.2%.

The decline in revenues can be attributed to a 3.4% fall in organic revenues and a 1.1% negative impact from foreign currency translation. However, the downside was partially offset by 0.8% growth from acquisitions net of divestitures. The decline in organic revenues comprises a 4.8% 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 1.4% rise in the company's organic Base Business (business operation excluding the company’s COVID-19 Testing).

Segments in Detail

LabCorp reports results under two operating segments — LabCorp Diagnostics and Covance Drug Development.

In the second quarter, LabCorp Diagnostics reported revenues of $2.26 billion, reflecting a 4.7% fall year over year. On an organic basis, revenues were down 5.7%, partially offset by acquisitions of 1.2%. This decline in organic revenues resulted from a 7.8% fall in contribution from COVID-19 Testing, partially offset by a 2.1% rise in Base Business.

The company witnessed a 2.7% fall in total volume (measured by requisition) on a 3.1% decline in organic volume and acquisition volume growth of 0.4%. Organic volume was primarily hampered by a 5.6% drop in COVID-19 Testing, partially offset by a 2.6% rise in Base Business.

Laboratory Corporation of America Holdings Price, Consensus and EPS Surprise

 

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

 

Covance Drug Development revenues fell 2.9% to $1.45 billion in the second quarter due to a 2.6% negative impact from foreign currency translation and a 0.6% decline in COVID-19 Testing. Yet, this downside was partially offset by 0.2% growth from acquisitions net of divestitures and a 0.1% increase in organic Base Business growth.

Margins

Gross margin contracted 256 basis points (bps) to 30.4% in the second quarter. Adjusted operating income declined 21% year over year to $636.7 million. Adjusted operating margin contracted 377 bps from the year-ago quarter to 17.2%.

Cash Position

LabCorp exited the second quarter of 2022 with cash and cash equivalents of $1.07 billion compared with $1.23 billion at the end of first-quarter 2022. Cumulative cash flow from operating activities at the end of the second quarter was $928.5 million, significantly down from $1.64 billion a year ago. Additionally, cumulative free cash flow at the end of the quarter under review was $668 million, down from $1.45 billion a year ago.

At the end of second-quarter 2022, 1.7 million shares were retired under the company’s existing share repurchase program.

2022 View

The company has updated its 2022 guidance.

Total LabCorp Enterprise revenues are expected to decline in the range of 6.0-2.0% (compared with the previously-projected fall in the range of 5.5-1.5%). This includes Base Business growth in the range of 5.0-7.5% (versus the previously-projected range of 8.0-10.0%). Meanwhile, COVID-19 testing revenues are expected to decline in the range of 60.0-50.0% (versus the earlier-projected decline in the range of 70.0-60.0%).

Total Diagnostics revenues are expected to fall in the range of 13-9% (versus the earlier-projected decline in the band of 15.5-11.5%). Total Drug Development revenues are expected to rise in the range of 1.5-3.5% (versus the earlier projected 6-8.5%) in 2022.

The Zacks Consensus Estimate for full-year revenues is pegged at $15.39 billion.

The company expects full-year adjusted EPS in the band of $19.00-$21.25 (up from the previous range of $18.25-$21.00). The Zacks Consensus Estimate for the metric is pinned at $19.77.

The company has maintained its projected free cash flow figure in the range of $1.7-$1.9 billion.

Our Take

LabCorp ended the second quarter of 2022 with better-than-expected earnings. The continued growth in the company's organic Base Business seems encouraging. The newly-introduced diagnostics for skin cancer, neurodegenerative disease, fertility and COVID-19 in the reported quarter buoys optimism. Further, the ongoing efforts to increase savings through the LaunchPad initiative amid the uncertain macroeconomic environment is an added upside. The raised adjusted EPS outlook for full-year 2022 also instills investors’ confidence in the stock.

However, LabCorp’s revenues for the second quarter lagged the Zacks Consensus Estimate and fell year over year. The significant plunge in EPS is worrisome. Contraction of both margins is discouraging. The decline in COVID-19 Testing, inflationary pressures and the ongoing Ukraine/Russia crisis continue to impact business performance.

Zacks Rank and Key Picks

LabCorp currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Quest Diagnostics Incorporated DGX, Medpace Holdings, Inc. MEDP and Neogen Corporation NEOG.

Quest Diagnostics, carrying a Zacks Rank #2 (Buy), reported second-quarter 2022 adjusted EPS of $2.36, which beat the Zacks Consensus Estimate by 9.8%. Revenues of $2.45 billion outpaced the consensus mark by 7.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Quest Diagnostics has an earnings yield of 7.2% compared with the industry’s 3.3%. DGX’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average being 12.1%.

Medpace Holdings, having a Zacks Rank #2, reported second-quarter 2022 adjusted EPS of $1.46, which beat the Zacks Consensus Estimate by 8.9%. Revenues of $351.2 million outpaced the consensus mark by 1.3%.

Medpace Holdings has an estimated growth rate of 22.7% for full-year 2022. MEDP’s earnings surpassed estimates in the trailing four quarters, the average being 17.3%.

Neogen reported fourth-quarter fiscal 2022 adjusted EPS of 18 cents, which surpassed the Zacks Consensus Estimate by 12.5%. Fiscal fourth-quarter revenues of $140.1 million outpaced the Zacks Consensus Estimate by 1.3%. It currently has a Zacks Rank #2.

Neogen has an estimated growth rate of 1.6% for fiscal 2023. NEOG’s earnings surpassed estimates in two of the trailing four quarters, lagged the same in one and broke even in the other, the average surprise being 1.5%.

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