Hologic (HOLX) Down 1.6% Since Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Hologic, Inc. (NASDAQ:HOLX) . Shares have lost about 1.6% in that time frame.

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

Recent Earnings

Hologic reported second-quarter fiscal 2018 adjusted earnings per share (EPS) of 53 cents, up 6% year over year and in line with the low end of the company’s 53-54 cents guidance. Adjusted EPS was also on par with the Zacks Consensus Estimate.

On a reported basis, the company recorded net loss of $2.46 per share, against net income of $1.84 in second-quarter fiscal 2017. Notably, the reported figure includes non-cash impairment charges for goodwill and in-process research and development associated with Hologic's Cynosure business.

Revenues in Detail

Revenues grossed $789.3 million in the quarter, up 10.3% year over year (up 8.3% at constant exchange rate or CER). The top line surpassed the Zacks Consensus Estimate of $780.1 million and the company’s guidance of $770-$785 million.

Solid contributions from Breast Health and international business drove the top line.

Geographically, revenues in the United States grew 3.3% year over year to $588.5 million. Excluding blood screening and medical aesthetics, U.S. revenues declined marginally. International revenues were up 37.8% (up 28% at CER) to $200.8 million, on strong contribution from Cynosure. Excluding blood screening and medical aesthetics, international revenues increased 26.4% or 15.1% at constant currency.

Segments in Detail

Revenues at the Diagnostics segment (35.4% of total revenues) declined 5.5% year over year (down 7.6% at CER) to $279.7 million in the second quarter. Under this segment, Molecular Diagnostics revenues of $150.7 million increased 6.1% (4.4% at CER). The global growth at Molecular Diagnostics was primarily driven by new product revenues along with continued solid uptake of Aptima women's health products.

Cytology and Perinatal revenues of $117.7 million also showed an improvement of 1.8% (down 1.4% at CER).

Revenues at the Breast Health segment (38%) inched up 7% (up 4.9% at CER) to $300.1 million. Revenue growth in the United States was roughly flat. In the reported quarter, the upside was led by higher service and new product revenues. International revenues however climbed 27.6% year over year, marking the third consecutive quarter of growth exceeding 20%.

Revenues from the GYN Surgical business (12.6%) were down 1.7% (down 3.2% at CER) to $99.4 million. Medical Aesthetic business in the quarter reported revenues of $85.5 million, reflecting 10.8% of total revenues. Revenues at Skeletal Health (accounting for the rest) increased 12.6% (up 9.9% at CER) to $24.6 million.

Operational Update

In the fiscal second quarter, Hologic’s gross margin contracted 170 basis points (bps) to 52.6%. Adjusted gross margin also decreased 120 bps to 62.7% due to the divestiture of blood screening business, geographic mix and revenues from low-margin Cynosure products.

Hologic’s adjusted operating expenses amounted to $266.9 million, up 19.7% year over year. Adjusted operating margin contracted a massive 380 bps to 28.9%.

Financial Update

Hologic exited second-quarter fiscal 2018 with cash and cash equivalents of $614.2 million, compared with $664.4 million at the end of first-quarter fiscal 2018. Total long-term debt was $2.74 billion at the end of the reported quarter, compared with $2.76 billion in first-quarter fiscal 2018.

During the quarter, the company generated operating cash flow of $266.5 million, compared with the year-ago $253.4 million.

Guidance

Hologic has updated its fiscal 2018 financial guidance. The company currently expects adjusted revenues of $3.18-$3.21 billion, compared with the previous range of $3.2-$3.28 billion. The company expects revenues to grow in the range of 2.7-3.7% compared with the previously provided range of 3.9-6.5% at CER. The Zacks Consensus Estimate for revenues is $3.25 billion, above the guided range.

Adjusted EPS guidance remains unchanged, calling for 9.4-11.8% growth to $2.22-$2.27. The Zacks Consensus Estimate for adjusted EPS is pegged at $2.25, within the guided range.

For third-quarter fiscal 2018, Hologic expects adjusted revenues of $795-$810 million, representing annualized decline of 1% to 2.8% at CER. The Zacks Consensus Estimate for revenues is pegged at $832.4 million, above the projected range.

Adjusted EPS is estimated at 55-57 cents, reflecting an annualized growth of 10-14%. The Zacks Consensus Estimate for third-quarter adjusted EPS is pinned at 58 cents, above the company’s guidance.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been six revisions lower for the current quarter.

VGM Scores

At this time, HOLX has a subpar Growth Score of D and a grade with the same score on the momentum front. The stock was allocated a grade of B on the value side, putting it in the top 40% 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.

The company's stock is suitable solely for value based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, HOLX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.