Hologic (HOLX) reported net loss per share of 53 cents during the fourth quarter of fiscal 2010 compared with the year-ago quarter’s EPS of 9 cents. However, after adjusting for certain items, EPS was 30 cents, meeting the Zacks Consensus Estimate and 2 cents above the year-ago quarter’s adjusted EPS. For fiscal 2010, the company reported adjusted EPS of $1.18, a penny above both the Zacks Consensus Estimate and the previous year.
Revenues were $428.3 million, an increase of 6.3% compared to the prior-year quarter and higher than the Zacks Consensus Estimate of $419 million. For fiscal 2010, Hologic reported revenues of $1.67 billion, meeting the Zacks Consensus Estimate and marginally above $1.64 billion of 2009. In August 2010, the company completed the acquisition of Canada-based privately owned Sentinelle Medical for $85 million.
Hologic operates in four segments − Breast Health, Diagnostics, GYN (Gynecology) Surgical, and Skeletal Health − which contributed 46%, 32%, 17% and 5%, respectively to the total revenue during the quarter. Barring Diagnostics revenue which declined 2.9% to $134.7 million during the quarter, the other three segments recorded a robust growth of 13.1% ($197.7 million), 8.4% ($73 million) and 4.4% ($22.9 million), respectively.
The strong growth witnessed by Breast Health was primarily driven by the rise in revenue from services related to Hologic’s increased installed base of Selenia systems and higher revenues from the new 2D/3D Dimensions product. This was partially offset by the closure of some operations in Shanghai.
Diagnostics revenue declined due to a reduction in ThinPrep pap tests volume resulting from reduced patient visits caused by economic uncertainty and changes in cervical cancer screening guidelines. In addition, lower selling prices due to laboratory consolidation were responsible for the decline in revenues. However, increased revenues from Cervista tests and Third Wave product lines provided some cushion to the decline. The increase in GYN Surgical revenue is primarily due to the growth in domestic sales of Adiana devices.
Hologic also provided an update on its Selenia Dimensions 3-D digital breast tomosynthesis system. The product received favorable recommendation from the Radiological Devices Panel of the US food and Drug Administration (FDA) on September 24, 2010 with respect to both safety and efficacy. However, it is yet to receive the final approval from the agency.
Guidance
Hologic provided its guidance for the first quarter of fiscal 2011 and fiscal 2011. In the first quarter, revenue is expected in the range of $425−$430 million with adjusted EPS of 28 cents. While the Zacks Consensus EPS Estimate of 31 cents is higher than the company guidance, revenue estimate of $428 million is within the range.
For fiscal 2011, Hologic expects revenues of $1.73−$1.76 billion and adjusted EPS of $1.21−$1.23. While the Zacks Consensus EPS Estimate of $1.27 is higher than the company guidance, revenue estimate of $1.74 billion is within the range.
Recommendation
With a wide range of products, Hologic has become an industry giant in the field of women’s health products. The company has grown through several acquisitions, the latest being Sentinelle, which should further strengthen its Breast Health segment. We expect revenues from the GYN Surgical segment to increase with further acceptance of the Adiana system. Moreover, Hologic has launched the next generation NovaSure endometrial ablation system, which should also contribute to growth.
However, Hologic faces tough competition and reduced doctor visits due to economic uncertainty, thereby hampering diagnostic revenues. The company suffers due to the trimming of hospital spending in the face of economic challenges.
We are currently Neutral on Hologic for the long term. The stock corresponds to the Zacks #3 Rank (Hold) in the short term
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