NEW YORK – Laboratory Corporation of America expects dwindling demand for COVID-19 testing to cut into its 2023 revenues, but anticipates acquisitions and an increase in esoteric testing to fuel growth in its base business.
During a conference call following release of the company's Q4 2022 results, Labcorp Chairman and CEO Adam Schechter said that hospital lab acquisitions "will be a key area of opportunity for growth in 2023 and beyond," and noted that its acquisition pipeline was "very full."
He said that Labcorp has recently seen an uptick in the number of entities interested in either selling their lab businesses or entering some sort of management agreement.
"There are a significant number of [hospital and local lab deals] that we are looking at and evaluating," Schechter said, adding that Labcorp expected to close on some of these deals this year.
This tracked observations by Labcorp competitor Quest Diagnostics, which also cited a robust lab acquisition pipeline during its Q4 2022 earnings call.
During the call, Schechter highlighted the impact of a major recent deal, Labcorp's $400 million agreement last year with St. Louis-based health system Ascension to manage the system's hospital-based laboratories in 10 states and to acquire certain parts of its outreach business. He said that following a recently completed integration of Ascension assets, Labcorp now provides lab management services for nearly 100 hospitals across the Ascension system.
For 2023, Labcorp is projecting base testing business revenues to grow between 10.5 percent and 12.5 percent year over year, with roughly half of that growth coming from the Ascension assets, said Glenn Eisenberg, the company's executive VP and CFO.
Meanwhile, COVID-19 testing revenue was down 79 percent year over year in Q4. Labcorp performed 1.4 million molecular COVID-19 tests during the quarter, averaging around 16,000 tests per day. Eisenberg said the company expects COVID-19 volumes will continue to decline throughout 2023. He added that Labcorp expects COVID-19 pricing will come down following the planned end of the federal public health emergency in May.
Helping to counter the drop in COVID-19 volumes and the expected drop in reimbursement is an increase in esoteric testing volumes, Eisenberg said, noting that this part of the company's business is growing more quickly than its routine testing business.
For Q4, Labcorp reported a 10 percent year-over-year decline in revenues.
Total revenues for the quarter ended Dec. 31 were $3.67 billion, down from $4.06 billion in the same quarter last year and below the consensus Wall Street estimate of $3.74 billion.
Diagnostics revenues for the fourth quarter were $2.29 billion, down 13 percent from $2.62 billion in the same quarter last year. The company's Covance drug development business saw revenues fall 4 percent to $1.39 billion in the quarter from $1.45 billion in the fourth quarter of 2021.
Organic diagnostic revenues were down 14 percent year over year on a decline in COVID-19 testing, partially offset by growth in the company's base testing business. Currency translation added a headwind of less than 1 percent, the Burlington, North Carolina-based lab company said.
Test volumes, measured by requisitions, were down 12 percent year over year during the quarter. Organic volumes were down 14 percent as acquisition-related volume contributed 2 percentage points of growth and a rise in base testing volumes contributed less than 1 percent.
Labcorp's net earnings for Q4 2022 were $76.4 million, or $.86 per share, compared to net earnings of $553.6 million, or $5.75 per share, in the same quarter last year. Adjusted EPS for Q4 2022 was $4.14, beating the consensus Wall Street estimate of $4.10.
The company's SG&A costs were $536.5 million, down 1 percent from $543.7 million in the same quarter last year.
For full-year 2022, revenues were $14.88 billion, down 8 percent from $16.12 billion in 2021 and below the consensus Wall Street estimate of $14.94 billion.
The diagnostics division posted $9.20 billion in revenues, down 11 percent from $10.36 billion in 2021. Full-year revenues in the Covance business fell 2 percent to $5.71 billion from $5.85 billion.
Acquisitions contributed under 1 percent of growth to full-year 2022 revenues, while foreign currency translation contributed a negative impact of 1 percent, Labcorp said. Organic revenues declined 8 percent year over year. Growth in the company's base business contributed 3 percentage points of growth, while a drop in COVID-19 testing contributed a decline of 10 percentage points.
Net earnings for the year was $1.28 billion, or $13.97 per share, compared to $2.38 billion, or $24.39 per share, in 2021. Adjusted EPS for full-year 2022 was $19.94, beating the consensus Wall Street estimate of $19.85.
For 2022, LabCorp spent $2.00 billion on SG&A, up 3 percent from $1.95 billion in 2021.
The company finished 2022 with cash and cash equivalents of $430.0 million.
For 2023, Labcorp projected year-over-year revenue growth of 1 percent to 4 percent and adjusted EPS of between $16.00 and $18.00.
As noted above, the company expects its base testing business will grow between 10.5 percent and 12.5 percent in 2023 compared to 2022 while COVID-19 revenue is anticipated to decline 75 percent to 90 percent year over year.
In Thursday morning trading on the New York Stock Exchange, Labcorp shares were down 3 percent to $240.78.