Labcorp's Q1 Revenue Surpasses Forecasts; Analysts Scrutinize Invitae Deal

Thursday, Labcorp LH reported first-quarter sales increased 4.6% to $3.18 billion, beating the consensus of $3.12 billion. Base Business grew 6.7%.

The increase was due to organic revenue of 2.3%, acquisitions, net of divestitures of 1.8%, and foreign currency translation of 0.5%. 

The 2.3% increase in organic revenue was driven by a 4.2% increase in the company’s organic Base Business, partially offset by a (1.9%) decrease in COVID-19 PCR testing (COVID-19 Testing). 

The adjusted operating income margin for the quarter was 14.3%, almost unchanged from 14.7% a year ago.

Diagnostics Laboratories revenue for the quarter was $2.48 billion, an increase of 4.1%.

Total volume increased by 3.4% as acquisition volume, net of divestitures contributed 2.2%, while organic volume increased by 1.2%. 

Organic volume was up due to a 2.6% increase in the Base Business, including the negative impact from adverse weather of approximately 1%. Price/mix was up 1.9%.

Biopharma Laboratory Services revenue reached $710.9 million, up 7.5% due to organic growth of 5.1% and foreign currency translation of 2.4%.

Guidance: Labcorp expects 2024 adjusted EPS of $14.45-$15.35 versus prior guidance of $14.30-$15.40 and consensus of $14.82.

Labcorp’s 2024 sales are expected to increase by 4.8%-6.4% compared to prior guidance of 4.7%-6.5%, Y/Y.

The guidance includes Diagnostics Laboratories sales growth guidance of 4.8%-6.0% and Biopharma Laboratory Services sales growth of 3.7%-5.7%, compared to prior guidance of 3.2%-4.8% and 5.5%-7.5%, respectively.

On Wednesday, the company said it will acquire bankrupt genetic test maker Invitae Corporation NVTA for $239 million, a few months after the genetic test maker filed for bankruptcy.

Labcorp expects this transaction would generate approximately $275 million-$300 million in annual revenue, with the majority in specialty testing areas such as oncology and rare diseases.

William Blair suggests investors may seek clarification regarding the deal due to Invitae’s increased cash burn. If Invitae can control this, the acquisition could enhance its portfolio by utilizing Labcorp’s infrastructure, especially in oncology and rare diseases testing. 

Labcorp’s aggressive M&A approach, with over $475 million spent recently, may not significantly boost segment growth but could create long-term benefits by expanding solutions and customer reach in a changing market.

Price Action: LH shares are down 4.7% at $197.86 at last check Thursday.

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