Hologic (HOLX) Down 12.1% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Hologic (HOLX). Shares have lost about 12.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hologic due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Hologic Q1 Earnings Meet, Revenues Beat Estimates

Hologic reported first-quarter fiscal 2020 adjusted earnings per share of 61 cents, up 5.2% year over year. The bottom line was in line with the Zacks Consensus Estimate.

On a GAAP (reported) basis, the company’s earnings of $1.43 per share reflect a stupendous surge of 297.2% from the year-ago quarter.

Revenues in Detail

Revenues grossed $850.5 million in the reported quarter, up 2.4% year over year (up 2.8% at constant exchange rate or CER). The metric beat the Zacks Consensus Estimate of $844.95 million by 0.7%.

Excluding the divested Blood Screening and Medical Aesthetics businesses, total revenues were $773.2 million, up 5% year over year and 5.4% at CER. Excluding the divestitures and the acquired SuperSonic Imagine (SSI) business, organic revenues of $767.1 million increased 4.1% and 4.6% in constant currency.

U.S. revenues of $632.7 million increased 1.8%. Additionally, international revenues of $217.8 million grew 4.3% or 6% in constant currency.

Organically, revenues in the United States rose 3.2% year over year to $588.6 million in the quarter. Moreover, global revenues were up 7.3% (up 9.2% at CER) to $178.5 million.

Segments in Detail

Revenues at the Diagnostics segment rose 5% year over year (up 5.5% at CER) to $311.5 million in the quarter under review, with Molecular Diagnostics being the major driver. Molecular Diagnostics’ revenues of $178.5 million climbed 8.6% (up 9% at CER), continuing the division’s strong performance. However, Blood Screening revenues of $12 million registered a 15.5% dip (down 15.5% at CER).

Revenues at the Breast Health segment increased 2% (up 2.4% at CER) to $331.1 million. Domestic sales drove Breast Health growth in the quarter, with 1.5% revenue rise year over year. However, outside the United States, Breast Health sales increased 5.5% in total but dipped 1.4% (without SSI) against robust growth of 16.1% in the prior-year period.

Although revenues at the GYN Surgical business grew 9.9% (up 10.2% at CER) to $119.1 million (which is the segment’s highest growth rate in 11 quarters), the Medical Aesthetic business revenues of $65.3 million reflects a 18.2% decline (down 17.7% at CER) in the reported quarter on the divestiture of the Cynosure Medical Aesthetics business.

Revenues at Skeletal Health rose 10.8% (up 11.4% at CER) to $23.5 million.

Operational Update

In the fiscal first quarter, Hologic’s adjusted gross margin contracted 60 basis points (bps) to 61.6%. The downside was primarily due to the strong U.S. dollar, an adverse product and geographic sales mix, and divested Cynosure's weak performance.

Adjusted operating expenses amounted to $289.3 million, up 5.3% year over year. Also, adjusted operating margin contracted 170 bps to 27.5%.

Financial Update

Hologic exited the first quarter of fiscal 2020 with cash and cash equivalents of $370.8 million compared with $601.8 million at the end of fourth-quarter fiscal 2019. Total long-term debt was $2.77 billion in the reported quarter compared with $2.78 billion at the end of the year-ago quarter.

At the end of the fiscal first quarter, net cash provided by operating activities was $113.9 million compared with $104.6 million a year ago.

Guidance

Hologic issued guidance for the second quarter and fiscal 2020. For fiscal 2020, the company expects adjusted revenues of $3.24-$3.27 billion (a decline of 3.8-2.9% on a reported basis and 3.5-2.6% at CER). The Zacks Consensus Estimate for revenues stands at $3.36 billion, which is above the company’s guidance.

Hologic envisions adjusted earnings per share of $2.63-$2.67 for fiscal 2020 (up by 8.2-9.9% on a reported basis). The consensus mark for the metric is pegged at $2.62, which is below the lower end of the company’s guidance range.

For second-quarter fiscal 2020, Hologic anticipates adjusted revenues of $770-$780 million (a decline of 5.9-4.7% on a reported basis and 5.4-4.2% at CER). The consensus estimate for revenues stands at $820.2 million, above the company’s projection.

Adjusted earnings per share is estimated at 61-63 cents for second-quarter fiscal 2020 (up by 5.2-8.6% on a reported basis). The Zacks Consensus Estimate for the same is pegged at 63 cents, which lies in the upper end of the company’s guidance range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Hologic has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Hologic has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.