NEW YORK (360Dx) – Laboratory Corporation of America reported today a 2 percent year-over-year revenue growth for the fourth quarter despite a 3 percent drop in diagnostic revenues.
Total revenues for the quarter ended Dec. 31, 2018 were $2.79 billion, up from $2.74 billion in the same quarter last year and matching the analysts' average estimate.
Growth was driven largely by the company's Covance drug development business, which saw revenues rise 10 percent to $1.1 billion in the quarter from $1 billion in the fourth quarter 2017. Diagnostic revenues for the fourth quarter were $1.69 billion, down 3 percent from $1.74 billion in the same quarter last year.
Diagnostics revenues were negatively affected by divestitures, implementation of the lower Medicare prices associated with the Protecting Access to Medicare Act (PAMA), adverse weather, foreign currency translation, and year-over-year calendar changes resulting from fewer revenue days and an extra payroll day, according to Glenn Eisenberg, LabCorp executive vice president and chief financial officer. Divestitures had a negative impact on revenues of 2.6 percent, and the negative impact of foreign currency translation was approximately .2 percent, he said. The negative impact from PAMA was 100 basis points, while the negative impacts from calendar changes and adverse weather were 80 basis point and 40 basis points respectively. Organic revenue growth was down .4 percent, which was offset by a .4 percent benefit from acquisitions, he said on a conference call to discuss LabCorp's financial results.
LabCorp Chairman and CEO David King suggested on the call that the company's Covance unit is not only offsetting lower revenues in the company's diagnostics division, but helping the diagnostics division win new hospital clients interested in participating in Covance clinical trials.
"We are in discussions in regarding a number of attractive potential hospital partnerships, and the financial benefits and positive impact on patient care produced by our ability to integrate health systems and physicians into clinical trials helps differentiate us from competitive solutions," he said.
King estimated that the company's Launchpad initiative for its diagnostics division, which focuses on eliminating manual processes, digitizing the business, and using technology to improve quality and the consumer experience, will deliver $200 million in savings in three years.
LabCorp diagnostic initiatives also include increased expansion into new channels, King noted. The company expects to have 125 LabCorp at Walgreens locations by the end of 2019, and 600 locations within three years. LabCorp anticipates that partnership with Walgreens will open "a new channel in the consumer market," according to King.
"We intend to capitalize on the opportunity by integrating patient's prescription and laboratory data and jointly offering health-focused services through this channel, including wellness screening, medication therapy management, and direct patient recruitment," he said.
During the quarter, net earnings attributable to LabCorp were $157.9 million or $1.56 per share, compared to net earnings of $687.8 million, or $6.63 per share, in the same quarter last year. Adjusted EPS for Q4 2018 was $2.52, beating the consensus Wall Street estimate of $2.49.
The company's SG&A costs were $396.9 million, compared to $417.3 million in the same quarter last year.
For full-year 2018, revenues were $11.33 billion, up 10 percent from to $10.30 billion in 2017. The diagnostics division posted $7.03 billion in revenues, up 2 percent from $6.86 billion in 2017. Revenues in the Covance business grew 25 percent to $4.31 billion from $3.45 billion.
Net earnings for the year attributable to LabCorp were $883.7 million, or $8.61 per share, compared to $1.23 billion, or $8.61 per share, in 2017. Adjusted EPS for the full-year 2018 was $11.02, beating the consensus Wall Street estimate of $10.99.
For 2018, LabCorp spend $1.57 billion on SG&A, up 4 percent from $1.50 billion in 2017.
LabCorp finished 2018 with cash and equivalents of $426.8 million.
For 2019, the company projected modest revenue growth of .5 percent to 2.5 percent over 2018 revenue. The revenue projections include a 1 percent negative impact from the disposition of businesses and a .4 percent negative impact from foreign currency translation. The diagnostics division is expected to decline 2 percent to 4 percent year over year, including a 2 percent negative impact from disposition of businesses. In addition, PAMA is expected to have a negative impact of 1.6 percent on the business, and changes in managed care contracts, laboratory provider networks and foreign currency translation are collectively expected to adversely impact the business by .3 percent.
Revenue in the company's Covance Drug development business is expected to grow 5 percent to 9 percent in 2019, which includes a negative impact from foreign currency translation of approximately .6 percent.
Adjusted EPS for the year is projected to be in the range of $11 to $11.40, the firm said.
In November, LabCorp lowered its year-end revenue as a result of slower-than-expected growth in the company's diagnostics division. Full year revenues in the diagnostics division were $7.03 billion, up 2.5 to $6.86 billion for 2018.
The results were "better than feared" given the company's guidance adjustment late last year, Evercore ISI analyst Ross Muken said today in a research note. He anticipated that the company's initial guidance projections for the coming year "should be a relief" to investors.
LabCorp shares were trading up 5 percent at $147.83 in midday trading on the Nasdaq.