Laboratory Corporation of America Holdings (Labcorp), an S&P 500 global life sciences company, experienced a decline by nearly every financial metric (i.e. net revenue, gross profit, net earnings, operating income, etc.) and missed earnings estimates for the third quarter. Labcorp’s ‘robust’ acquisition strategy could not offset the impact of significant headwinds, including rising labor costs, labor shortages and other inflationary pressures. A major decrease in COVID-19 PCR and antibody testing sales also contributed to the decline in organic revenues. The reduced guidance for 2022 is indicative of this downward trend continuing into the final quarter of the year. The Burlington, North Carolina-based company reported:
- 11.2% decrease in net revenue from $4.06 billion in Q3:21 to $3.61 billion in Q3:22.
- 23.7% decrease in gross profit from $1.39 billion (34.2% of net revenue) in Q3:21 to $1.06 billion (29.4% of net revenue) in Q3:22.
- 39.9% decrease in net earnings from $587.3 million in Q3:21 to $352.8 million in Q3:22.
- 33.4% decrease in operating income from $2.53 billion (21% of net revenue) in Q3:21 to $1.68 billion (15% of net revenue) in Q3:22.
- 46% decrease in cash flow from operations from $2.41 billion in Q3:21 to $1.3 billion in Q3:22.
- Completed transactions that establish its long-term laboratory relationship with Ascension
- Also completed the acquisition of RWJBarnabas Health‘s outreach laboratory business and select related assets for an undisclosed price
Labcorp is revising its guidance for Full Year 2022:
- Revenue growth is expected to drop between 2% and 6% from 16.1 billion in Q3:21. That compares to its previous guidance of a drop between 6% and 7.5%
- COVID-19 testing is expected to decline between 50% and 60% from $2.8 billion in Q3:21
- Expects adjusted EPS of $19.00 to $21.25 for the year.
Here are some notable quotes from Adam Schechter, President, CEO and Chairman of Labcorp:
- “Base business organic revenue for the enterprise, excluding COVID testing revenue, is up 1.4% year-over-year on a constant currency basis. This demonstrates the strength of our underlying business, particularly in diagnostics, in a very challenging operating environment marked by rising labor costs, labor shortages and other inflationary pressures.”
- “In early development, we have strong demand for trial work as well as adequate capacity. However, the impact from our business was due to labor constraints. We are hiring as fast as we can. But like in many parts of the economy, finding labor has been difficult.”
- “Across diagnostics and drug development, our margins were negatively impacted by rising labor costs and other inflationary pressures. We are taking cost actions, and we’re focused on improving margins. In addition, LaunchPad savings continue to help offset the impact of near and expected midterm headwinds.”
- “COVID PCR testing volumes continued to decline during the quarter, totaling 2.2 million tests performed and averaging 24,000 per day. As we enter the winter amid concerns about rising COVID, flu and RSV cases, we’re maintaining adequate supply and capacity to accommodate current and future testing needs. Also, our scientists stand ready to respond as new variants arise.”
- “Earlier this month, we announced the completion of transactions that established our comprehensive laboratory relationship with Ascension. Our strategic collaboration includes an agreement for Labcorp to manage hospital labs in 10 states and to acquire certain lab assets… the collaboration expands access to Labcorp’s comprehensive capabilities and laboratory services for communities served by Ascension.”
- “In addition to the Ascension agreement, we’re focused on accelerating our hospital and health systems business. We completed our acquisition of the outreach lab business and related assets of New Jersey-based RWJBarnabas Health during the quarter, and that integration is also progressing well.”
- “Our hospital and local lab acquisition and investment pipeline is very robust, and we see major opportunity now through 2023.”
- “In summary, our base business fundamentals remain strong, and we are well positioned to deliver sustained long-term value and growth.”
