NEW YORK (360Dx) – Laboratory Corporation of America today reported 8 percent year-over-year revenue growth companywide for the third quarter while the company's diagnostics revenues were flat.
Total revenues for the quarter was $2.83 billion, up from $2.62 billion in the third quarter of 2017, and missed the consensus Wall Street estimate of $2.84 billion.
Growth was driven largely by acquisitions, which accounted for 6.5 percent of growth, and strong performance in the company's Covance drug development business. Organically, revenues were up almost 3 percent.
In diagnostics, revenues were flat at $1.75 billion. Organically, the division's revenues were up more than 1 percent. Organic volume growth was almost 2 percent. That growth excludes additional impact from a ransomware attack in July and Hurricane Florence, according to David King, LabCorp's chairman and CEO.
"This outcome was below our expectations with margin performance particularly disappointing and we are taking strong actions as a result," King said on a conference call following the release of the firm's financial results.
The company will make organizational changes to strengthen leadership, he said. LabCorp will also launch another phase of its LaunchPad business process improvement initiative geared toward using automation and process re-engineering to find cost savings in diagnostics.
The ransomware attack impacted revenue by approximately $10 million and operating income by approximately $23 million, according to Glenn Eisenberg, LabCorp executive vice president and chief financial officer. The $23 million impact on operating income included about $13 million of discreet expenses including overtime and consultant and contractor expenses and about $11 million from lower volume due to the decisions to take certain systems offline to deal with the attack.
Meantime, Hurricane Florence impacted revenue by approximately $4 million, Eisenberg said, largely due to lower volume. These events combined to reduce adjusted EPS by $.10, he said.
The company's Covance unit saw revenues grow by nearly 24 percent year over year to $1.08 billion, or 7 percent organically.
The quarter saw the company announce a planned expansion of its partnership with Walgreens to at least 600 locations. King said has been interested in expanding the partnership because market research indicated that many patients using the Walgreens centers are either new to LabCorp or haven't been to LabCorp in more than a year. The economics of the Walgreens locations are comparable to the company's own patient service centers, he said.
The company is also preparing for the commercial launch of a wellness testing program that will include home-based sample collection and personalized online results.
"This platform will extend consumer access to our high-quality trusted lab testing into additional settings — the most immediate of these is reaching patients in the home," King said, adding the home-based testing initiative will be targeted toward general wellness testing as well as testing for high-need patients, he said.
Subsequent to the end of the quarter LabCorp also announced a multiyear collaboration with Baptist Heath, based in Kentucky. LabCorp will use its operational expertise and testing menu to help the Kentucky based hospital group expand testing services and streamline operations, King said.
King said next year is expected to be challenging due to the ongoing impact to the lower Medicare lab test priced introduced by the Protecting Access to Medicare Act and contractual changes in managed care.
"Although the headwinds facing our company will be at their stiffest next year, we expect to deliver modest growth in adjusted EPS in 2019 and to establish a solid foundation for accelerating growth in 2020 and beyond," King said.
During Q3 2018, net earnings attributable to LabCorp were $318.8 million, or $3.10 per share, compared to $171.5 million, or $1.65 per share, in the same quarter last year. Adjusted EPS for the quarter was $2.74 and missed the analysts' average estimate of $2.88.
The company's SG&A costs were $381.8 million, compared to $381.1 million in the same quarter last year.
For full-year 2018, LabCorp narrowed its revenue growth range to between 10.5 percent and 11 percent year over year compared to an earlier range of between 10.5 percent and 11.5 percent. The change is due to the impact of business disruptions and unfavorable changes in currency translation, the company said.
LabCorp diagnostics is anticipated to see revenue growth of 3 percent to 3.5 percent year over year, narrowed from a previous guidance of between 3 percent and 4.5 percent.
The company updated its adjusted EPS guidance for the year to $11.25 to $11.45 compared to a previous guidance of $11.35 to $11.65.
LabCorp ended the quarter with $892.6 million in cash and cash equivalents.
The company's shares were down 5 percent in morning trading on the New York Stock Exchange to $160.77.