Dive Brief:

• Hologic delivered a beat-and-raise quarter driven by double-digit growth at its molecular diagnostics group and resurgent breast health business.

• Overall sales increased by 5%, resulting in Hologic coming in ahead of analyst revenue and earnings forecasts.

• Hologic achieved the growth despite the continued underperformance of its Cynosure medical aesthetics unit, which suffered a double-digit decline in sales.

Dive Insight:

Hologic has shifted its focus over the past year. With ts $1.6 billion acquisition of Cynosure leading to a $732 million write down, Hologic has looked to other, older parts of its business for growth. The shift has paid off. Breast health, a traditionally streaky business, has emerged as a consistent growth driver while molecular diagnostics has continued to contribute.

Those dynamics, which characterized the back half of 2018, have continued into the new year. Sales at the breast health unit were up 12.7% on the back of growth at the imaging subunit. Some of the growth came from the acquisitions of Faxitron and Focal Therapeutics. Organic growth was 9%. In the U.S., which accounts for three-quarters of the unit, sales growth accelerated for the sixth quarter on the run.

Hologic cited new products as a factor behind the performance. Products such as the 3Dimensions mammography system drove 15% growth in breast imaging systems. Hologic sold the systems to facilities that are converting from 2D mammography, and early adopters of 3D systems that now want to upgrade to the latest technology. The upgrade cycle could be an important growth driver.

"Based on our 3D market model, nearly 1.4k 3D systems were placed in the 2011-2014 window with at least half sufficiently aged and eligible for upgrade, suggesting this driver alone can sustain Breast Health growth in the mid-to-high single digits for the remainder of F[Y]2019," analysts at Jefferies wrote in a note to investors.

Molecular diagnostics were the other star performer. Sales of the tests grew 11.2% in the quarter on the strength of a high-single-digit increase in the U.S. and another double-digit period internationally. The molecular diagnostics unit has now achieved double-digit growth internationally in 10 of the last 11 quarters. Overall, Hologic remains skewed to the U.S. but is growing faster overseas.

With breast health and molecular diagnostics comprising almost two-thirds of Hologic's business, their performance was enough to offset weaknesses elsewhere. Notably, Hologic's move into the medical aesthetics market continues to disappoint.

Hologic paid $1.6 billion to buy Cynosure and expand into the new market, sparking varying degrees of surprise and concern among analysts and other observers. The doubts proved to be well placed. Hologic took a $732 million write down on the deal in May and has continued to struggle despite work to rebuild the sales force. Revenues fell 12% in the first quarter.

For now, breast health and molecular diagnostics are strong enough to carry medical aesthetics. After beating expectations in the quarter, Hologic is increasingly confident that the good will outweigh the bad across 2019. Hologic raised the bottom end of its 2019 sales guidance and held its earnings forecast steady despite stiffening foreign exchange headwinds.

The company recently received a De Novo clearance from FDA for its Aptima Mycoplasma genitalium assay, which screens for inflammation caused by the M. gen. bacterium in men and women. It's the first test authorized by the agency for this particular sexually transmitted infection. Last month, Hologic launched its Omni scope, which intends to streamline diagnostic and therapeutic uterine procedures by combining three interchangeable sheath options in one device.