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Actionable news in LH: LABORATORY CORPORATION OF AMERICA HOLDINGS,

Laboratory Corporation of America: 358 South Main Street

The following excerpt is from the company's SEC filing.

Burlington, NC 27215

Telephone: (336) 584-5171

LABORATORY CORPORATION OF AMERICA

HOLDINGS

ANNOUNCES 2015 THIRD QUARTER RESULTS

Q3 Net revenue of $2.3 billion, up 46% over last year

Q3 Diluted EPS of $1.49; Q3 Adjusted EPS of $2.07, up 15% over last year

Q3 Free Cash Flow of $220 million, up 79% over last year

2015 Adjusted EPS guidance updated to $7.80 - $7.95 from $7.75 - $8.00

Laboratory Corporation of America

Holdings (LabCorp

or the “Company”) (NYSE: LH) today announced results for the quarter ended September 30, 2015.

Consolidated Results

Third Quarter Results

Net revenue for the quarter was $2.27 billion, an increase of 46.3% over last year’s $1.55 billion. The acquisition of Covance contributed $647.0 million in net revenue during the quarter, driving 41.7% year over year growth. The remainder of the increase of $71.1 million, or 4.6%, was driven by solid organic volume growth, price, mix and tuck-in acquisitions, partially offset by currency. Organic revenue growth in the quarter, excluding currency, was 4.3%.

Operating income for the quarter was $306.9 million, compared to $241.4 million in the third quarter of 2014. The Company recorded restructuring charges and special items of $31.5 million during the third quarter of 2015, compared to $11.3 million during the same period in 2014. Adjusted operating income (excluding amortization of $47.1 million, restructuring and special items) for the quarter was $385.5 million, or 17.0% of net revenue, compared to $271.0 million, or 17.5%, in the third quarter of 2014. The increase in adjusted operating income was due to the Covance acquisition, organic volume growth, price, mix and productivity, partially offset by currency and personnel costs. The decline in margin is due to the mix impact from the acquisition of Covance.

The Company recorded net earnings in the quarter of $152.8 million, or $1.49 per diluted share, compared to $137.2 million, or $1.59 per diluted share, last year. Adjusted EPS (excluding amortization, restructuring and special items) increased 15.0% to $2.07 in the quarter, compared to $1.80 in the third quarter of 2014.

“We are extremely pleased with our results this quarter, in which LabCorp Diagnostics had continued strong organic growth, and Covance Drug Development had strong new orders and accelerated revenue growth,” said David P. King, chairman and chief executive officer. “We delivered significant and measurable progress on the strategic priorities underlying the acquisition of Covance, positioning the Company well for long-term future profitable growth, and building on our mission of improving health and improving lives.”

Operating cash flow for the third quarter was $288.0 million, compared to $175.6 million in the third quarter of 2014. The increase in operating cash flow was due to the acquisition of Covance as well as improved earnings. Capital expenditures totaled $67.8 million, compared to $52.6 million in the third quarter of 2014. As a result, free cash flow (operating cash flow less capital expenditures) was $220.2 million, compared to $123.0 million in the third quarter of 2014.

At the end of the quarter, the Company’s cash balance and total debt were $713.0 million and $6.7 billion, respectively. During the quarter, the Company invested $8.3 million in tuck-in acquisitions and paid down $125.0 million of debt. The Company’s liquidity at the end of the quarter was approximately $1.7 billion, consisting of cash and available credit.

Year-To-Date Results

The following year-to-date consolidated results of the Company include Covance as of February 19, 2015; prior to February 19, 2015, these consolidated results exclude Covance.

Net revenue was $6.26 billion, an increase of 39.2% over last year’s $4.50 billion. The acquisition of Covance contributed $1.54 billion from the February 19, 2015 closing date, driving 34.2% year over year net revenue growth. The remainder of the increase of $227.0 million, or 5.0%, was due to strong organic volume growth and tuck-in acquisitions, partially offset by currency. Organic revenue growth in the first nine months of 2015, excluding currency, was 4.9%.

Operating income was $759.5 million, compared to $691.4 million in the first nine months of 2014. Operating income was reduced by $193.1 million in restructuring charges and special items (costs associated with the acquisition of Covance and Project LaunchPad) recorded during the first nine months of 2015, compared to $25.6 million during the same period in 2014. Adjusted operating income (excluding amortization of $126.2 million, restructuring and special items) was $1.08 billion, or 17.2% of net revenue, compared to $778.3 million, or 17.3%, in the first nine months of 2014. The increase in adjusted operating income was primarily due to the acquisition of Covance, organic volume growth and productivity gains, partially offset by currency and personnel costs.

The Company’s pre-tax earnings were reduced by restructuring and special items of $248.0 million ($193.1 million impacted operating income, $52.6 million impacted interest expense, and $2.3 million impacted other, net), or $182.5 million after-tax. As a result, the Company recorded net earnings in the first nine months of 2015 of $322.6 million,

or $3.24 per diluted share, compared to $391.6 million, or $4.53 per diluted share, last year. Adjusted EPS (excluding amortization, restructuring and special items) were $5.94, compared to $5.15 in the first nine months of 2014.

Operating cash flow for the first nine months of 2015 was $597.8 million, compared to $525.3 million during the same period in 2014. Operating cash flow in 2015 was negatively impacted by $153.5 million in non-recurring items relating to the acquisition of Covance. Excluding these items, operating cash flow was $751.3 million, with the year-on-year increase driven by improved earnings. Capital expenditures totaled $170.7 million, compared to $157.2 million in the first nine months of 2014. As a result, free cash flow (operating cash flow less capital expenditures) was $427.1 million, compared to $368.1 million during the first nine months of 2014. Excluding non-recurring items, free cash flow was $580.6 million during the first nine months of 2015.

The following segment results are presented on a pro forma basis for all periods as if the acquisition of Covance closed on January 1, 2014 and exclude amortization, restructuring, special items and unallocated corporate expenses. Reconciliations of segment results to historically reported results are included in the Condensed Pro Forma Segment Information tables and notes.

Segment Results

Net revenue for the quarter was $1.60 billion, an increase of 4.8% over net revenue of $1.53 billion for the third quarter of 2014. The increase in net revenue was the result of organic volume growth (measured by requisitions), Beacon LBS, price, mix and tuck-in acquisitions, partially offset by currency. The increase in net revenue of 4.8% includes the benefit from Beacon LBS of 1.2%, and unfavorable foreign currency translation of 1.0%. Total volume (measured by requisitions) increased by 2.9% (organic volume of 2.3% and acquisition volume of 0.6%). Revenue per requisition increased by 1.7%.

Adjusted operating income (excluding amortization, restructuring and special items) for the quarter was $330.2 million, or 20.6% of net revenue, compared to adjusted operating income of $305.6 million, or 20.0% of net revenue, in the third quarter of 2014. The increase was primarily due to volume, price, mix, and productivity, partially offset by personnel costs and currency. Improvement in productivity was driven by Project LaunchPad, the Company’s enterprise-wide business process improvement initiative, which generated approximately $20 million in net benefits during the quarter.

Net revenue for the quarter was $669.0 million, an increase of 2.6% over $652.0 million for the third quarter of 2014. The stronger U.S. Dollar negatively impacted year-over-year revenue growth by approximately 370 basis points. Excluding currency, net revenue increased 6.3% year-over-year on increased volume, partially offset by mix.

Adjusted operating income (excluding amortization, restructuring and special items) was $97.0 million, or 14.5% of net revenue, compared to adjusted operating income of $88.4 million, or 13.6% of net revenue, in the third quarter of 2014. The increase was primarily due to volume and cost synergies, partially offset by personnel costs and mix. The Company generated approximately $15 million in cost synergies during the quarter.

Net orders (gross orders less cancellations and reductions) in the quarter were $811 million, representing a net book-to-bill of 1.21. Backlog at September 30, 2015 was approximately $6.7 billion.

Outlook for 2015

The Company’s updated guidance for 2015 includes the following:

Net revenue growth (assuming foreign exchange rates effective as of September 30, 2015) of approximately 41%, after the impact from approximately 220 basis points of negative currency. Net revenue growth in LabCorp Diagnostics of 4.5% to 5.5%, after the impact of approximately 90 basis points of negative currency. The change in net revenue in Covance Drug Development is expected to be -0.5% to 0.5% versus full year 2014 revenue after the impact of...


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