Hologic Inc. (HOLX)reported first-quarter fiscal 2015 adjusted earnings of 39 cents per share, representing an improvement of 14.7% from the year-ago level. The adjusted number beat the Zacks Consensus Estimate by a solid 8.3% and also steered ahead of the company's guidance of 35−36 cents.
On a reported basis, the company recorded net income of $29.2 million or 10 cents per share, much ahead of the net loss of $5.3 million or 2 cents per share incurred in the prior-year quarter.
Revenues in Detail
Revenues were $652.8 million in the quarter, up 6.6% year over year. The top line also comfortably exceeded the Zacks Consensus Estimate of $633 million and the company's expectation of $625−$635 million.
Notably, in the quarter, Hologic's growth was broad-based as all four of its business segments delivered positive growth, the growth rate ranging between 6% and 8% at constant exchange rate or CER.
Moreover, with this quarter, Hologic marked the fourth consecutive quarter of sequential revenue growth and the highest organic growth rate achieved in a number of years.
Segments in Detail
The Diagnostics segment (46.6% of total revenue) was up 6.4% year over year to $304.1 million in the quarter. The top-line growth in this segment was primarily driven by the 26.3% increase in blood screening revenues derived from Hologic's partner Grifols on account of its new business with the Japanese Red Cross. Also, a 5.6% increase in molecular diagnostics revenues, derived mainly from the Aptima product line, contributed to this segment's growth. However, revenues from cytology and perinatal products declined 1.2%.
Breast Health segment (37.1%) improved 6.9% year over year to $242 million. Growth was primarily driven by a 10.9% increase in breast imaging and service revenues, as customers continued to adopt Hologic's 3D mammography. However, interventional breast revenues declined 2.3%, which weighed on the growth partially.
The GYN Surgical business (12.9%) recorded revenues of $84.4 million, up 7% from the comparable prior-year period on account of the 27.4% revenue growth delivered by MyoSure system. Revenues from Skeletal Health (accounting for the rest) climbed 4.5% year over year to $22.3 million, primarily driven by increased sales of Hologic's new Horizon bone densitometry system.
Operational Update
In the reported quarter, Hologic reported gross margin of 51.9%, reflecting an expansion of 200 basis points (bps). However, adjusted gross margin remained flat at 63.3% in the reported quarter, since improvements in product mix and operational efficiencies offset the stronger dollar and continued the pressure on price.
Hologic's adjusted operating expenses (amortization and restructuring charges) amounted to $199.3 million, down 0.3% year over year. Accordingly, adjusted operating margin was 21.3%, an expansion of 400 bps year over year.
Financial Update
Hologic exited the quarter with cash and cash equivalents of $544 million compared with $736 million at the end of fiscal 2014. Long-term debt (net of current portion) as on Dec 27, 2014 was $3.82 billion, compared to $4.15 billion as of Sep 27, 2014.
Guidance
Buoyed by its better-than-expected financial results in the first quarter, Hologic has raised its revenue and adjusted EPS guidance for fiscal 2015. The company now expects total revenue to range from $2.57–$2.60 billion for fiscal 2015, up from the previously expected $2.54–$2.57 billion. This updated revenue guidance represents annualized growth of 2.4–3.6% on a reported basis and 4.4–5.6% at CER. The current Zacks Consensus Estimate for revenues for fiscal 2015 is pegged at $2.56 billion, which lies below the guidance range.
On the bottom-line front, Hologic now expects adjusted EPS in the range of $1.54–$1.57 for fiscal 2015, up from the prior guidance range of $1.50–$1.54. This updated EPS guidance reflects annualized growth of 5.5–7.5% on a reported basis and 8.9–11% on a constant currency basis. The current Zacks Consensus Estimate for adjusted EPS is pegged at $1.53, which lies within the guidance range.
For second-quarter fiscal 2015, Hologic expects year-over-year revenue growth of 4.5% to 6.1% at CER. On a reported basis, the company expects revenues of $640 million–$650 million (growth of approximately 2.4% to 4%). Adjusted EPS is expected in the range of 38–39 cents (year-over-year growth of approximately 2.7% to 5.4%).
The current Zacks Consensus Estimate for revenues and EPS are pegged at $635 million and 38 cents, respectively.
Our Take
Hologic delivered an outstanding performance in the first quarter of fiscal 2015, squarely beating the Zacks Consensus Estimate. The company delivered strong organic revenue and earnings growth across the board in the reported quarter and expects further improvement in its financials going forward, as validated by its raised guidance for fiscal 2015.
It's worth noting that in the quarter under review, a slight improvement was observed in Hologic's Thinprep liquid cytology franchise wherein a declining sales trend had been observed over the past few quarters. Although sales from this franchise declined in the first quarter, the rate of decline was lower owing to the company's share gains in the market as well as better focus and execution in the space.
Currently, the company's strategy lies in strengthening its R&D pipelines and constantly enhancing its operational efficiencies in the near term. In the long run, management aims at improving its capital structure and reducing its tax rate for its shareholders' benefit. The raised guidance revives our faith in Hologic.
Hologic presently holds a Zacks Rank #2 (Buy). Some other well-placed medical instrument stocks are Inogen, Inc. (INGN), Edwards Lifesciences Corp. (EW) and ABIOMED, Inc. (ABMD). While Inogen sports a Zacks Rank #1 (Strong Buy), Edwards Lifesciences and ABIOMED carry a Zacks Rank #2.
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