The Burlington, North Carolina-based Laboratory Corporation of America Holdings (LH, Financial) commonly referred to as LabCorp reported 1.51 billion revenues for quarter four ending Dec. 31, 2014.
Quarter Four Performance
Riding high on the acquisition wave, the fourth quarter revenues of LabCorp, surged by 5.3% YOY to $1.51 billion, exceeding street estimation of $1.49 billion. The net earnings stood at $119.6 million or $1.39 per share against $126.3 million or $1.43 per share a year ago. LabCorp reported operating cash flow of $213.7 million for the quarter, a 14% reduction from $248.7 million in Q4, 2013. Poor revenue per requisition figure of -1.1% year over year amid unfavorable currency impact of 0.5% was a bit of a spoilsport, though. This reduced figure was caused due to the utilization of working capital to support revenue growth and cash costs related to Project LaunchPad and the Covance acquisition. There was 6.4% increase in testing volume (measured by requisitions and acquisitions) fueled by organic growth (5.3%). Free cash flow figure stood at $167.4 million, down from $189.1 million in the fourth quarter of 2013. Adjusted operating income declined 1.5% year over year to $236.8 million leading to an adjusted operating margin of 15.7%. This figure is 108 bps down from quarter four of 2013. The selling, general and administrative expenses shot up $309.7 million, a jump of 8.4%. Gross margin dropped 48 basis points (bps) to 36.1% during the quarter. The adjusted fourth quarter earnings figure was $1.65 per share on revenue of $1.51 billion for the period. The common consensus among the analysts was $1.63 per share on revenue of $1.49 billion.
Annual performance
The company reported annual earnings of $511.2 million, or $5.91 per share, on revenue $6.01 billion. The annual revenue figure is 3.5% higher than the 2013 figure and above market consensus. LabCorp reported adjusted EPS of $6.80 which was down by 2.2% year over year but above $6.78 market estimate. Total business volume, including acquisitions moved up by 6.4% on a year-over-year basis. The company’s revenue per requisition however dipped by 1.1%, while the organic volume growth stood at 5.3%. By the end of Dec. 31, 2015 the company had cash and cash equivalents of $580 million which is a few notches higher than $404 million in 2013. For the current year LabCorp has presented forecast EPS in a range of $7.35 to $7.70 per share, a potential rise of 30% over 2014’s earnings.
Points worth mentioning
The company announced having completed the acquisition of drug development services company Covance (CVD) for a share conversion price of $107.19 per Covance share. The company also announced "Project Launchpad," an enterprisewide business process improvement initiative expected to achieve net savings in excess of $150 million over the next three years. Last year, the company initiated a share repurchase program worth $269 million out of the total share count of 2.7 million. The repurchase program has been put on hold to enable the company to achieve the target leverage ratio of 2.5 times debt to EBITDA.
About the company
Laboratory Corporation of America Holdings is a leading independent clinical laboratory which offers a broad range of routine tests (including blood chemistry analysis, urinalyses, blood cell count, thyroid test, Pap tests and HIV tests) as well as specialty testing operations or esoteric testing.
Summary
The company’s strengths in multiple areas, like a strong stock price performance, revenue growth, expanding profit margins and noteworthy return on equity, overshadow the sub-par growth in net income for the quarter. LabCorp and the street expect Covance integration and Project LaunchPad to boost the numbers in 2015. The improving industry scenario, strong revenues and earnings guidance for 2015 puts the stock in a favorable lot. It is certainly a "Buy" recommendation.
