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HomeMarketHologic CEO Sees Covid-Era Boom Translating Into Long-Term Growth

Hologic CEO Sees Covid-Era Boom Translating Into Long-Term Growth

Hologic CEO Stephen MacMillan said its breast-care business is recovering more quickly than expected.

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Daniel Acker/Bloomberg

Financial results announced late Wednesday by
Hologic
seem to vindicate the medical testing company’s case that its Covid-era boom can translate to long-term growth.

Hologic
(ticker: HOLX) revenue is dropping swiftly as sales of its Covid-19 tests drop. The company sells tests, or assays, that large labs run on Hologic’s Panther, a highly automated machine that processes hundreds of molecular tests at a time.

While Covid-19 assay sales are dropping, sales of the non-Covid tests that run on the Panther were up 24.5% in the first quarter of the company’s 2023 fiscal year, which ended at the end of December.

That is good news for the company’s argument, which Barron’s laid out in an October feature, that the Panther machines it installed around the world during the pandemic will drive long-term revenue as users eventually switch to running non-Covid assays.

“We kept saying into Wall Street, look, it’s coming, it’s coming, and then there’d be another surge,” Hologic CEO Stephen MacMillan told Barron’s shortly after the company reported earnings on Wednesday. “Now we’re really seeing that adoption of our core menu [of tests] over onto all those additional machines, and I think it’s what makes us really excited about the future.”

Hologic reported revenue of $1.1 billion for the quarter, slightly better than the FactSet analysts consensus estimate of $1 billion, and down from $1.5 billion for the same quarter the prior year.

Sales of the Covid-19 tests, or assays, had inflated Hologic revenue over the course of the pandemic, driving it from $3.7 billion in the company’s 2020 fiscal year to $5.6 billion in its 2021 fiscal year.

Demand for those assays is now clearly dropping. Revenue of its molecular diagnostic business, which includes its Covid-19 assays, was down 47.7% in the first quarter of Hologic’s year.

“The bear thesis on us was, we placed all these machines [during Covid], but they would end up being mothballed,” MacMillan said. “What we’re now showing is, hey, over 90% of them have adopted at least one assay non Covid, which means they’re becoming loyal users.”

Hologic said Wednesday that 33% of all U.S. customers are now running at least four tests, up from 20% at the end of the company’s 2019 fiscal year. The company doesn’t break out which non-Covid assays are seeing the most growth, but MacMillan said that in general it is the company’s women’s health assays, including tests for chlamydia and gonorrhea.

“As Covid business has gone away, they’re transferring over and adopting our core menu,” MacMillan said.

Another concern for Hologic had been a drop in revenue for its breast-care business as chip shortages cut into deliveries of its mammography systems. The Wednesday earnings report suggests that those concerns may be fading. The company reported that sales for the division were down 7% compared with the same quarter the prior year, which Hologic said was above expectations.

“We see it playing out by the end of this year, [and by] the end of our fiscal year being back to full deliveries,” MacMillan said.

Hologic’s non-GAAP diluted earnings for the first quarter of its fiscal year were $1.07 per share, well above the $0.91 FactSet analyst consensus estimate.

The company raised its earnings and revenue guidance for the rest of its 2023 fiscal year, saying it now expects revenue of between $3.9 billion and $4 billion, up from its previous guidance of between $3.7 billion and $3.9 billion. It expects non-GAAP earnings of between $3.55 and $3.85, up from its previous estimate of between $3.30 and $3.60.

MacMillan said that part of the decision to raise guidance for the full year was that the first quarter results came in better than expected, and part of it was that the breast-care business is recovering more quickly than expected.

“We’re off to a good start, but we never want to get too far ahead of ourselves either,” he said.

Hologic shares have been up sharply in recent months, and as of the close of the market on Wednesday were up 10.7% so far in 2023. The stock hit a 52-week high before the markets closed, finishing at $82.78. Shares rose again after the company reported its financial results, and the stock was up 2.1% in after hours trading to $84.50.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

Credit: marketwatch.com

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