Dive Brief:
- Women's health technology manufacturer Hologic boosted its full year revenue forecast Wednesday amid growth in its steady breast health business and a strong quarter from its molecular diagnostics unit. Results came despite an overall decline in organic revenue growth from the first quarter.
- Earnings of about $818 million on the quarter, compared to a consensus estimate of about $807 million, represented 3.7% year-over-year growth.
- The company touted revenue contributions of $14.6 million from the integration of cabinet X-ray manufacturer Faxitron and surgical marker maker Focal Therapeutics. CEO Steve MacMillan said Hologic continues "to be on the lookout for similar tuck-in acquisitions."
Dive Insight:
Though Hologic beat Wall Street's targets and impressed analysts with its breast health and diagnostics results, a costly downward trend in the medical aesthetics business and foreign market headwinds also gave reasons for concern.
"While the two product segments were up an estimated 10% ... the remaining 40% of the revenue was down 1% and again highlights 'the tale of two cities' that currently defines Hologic as the company continues to struggle to find growth in other areas of the business," William Blair analysts wrote in an investor note.
Hologic completed its acquisition of medical aesthetics systems and technology maker Cynosure in March 2017. But making the business profitable has been a recurring sticking point. In the first quarter, the unit fell 12.6%. That drop steepened to 13.7% in the most recent quarter.
"The major storylines at Hologic haven’t changed much over the last three months," MacMillan said on the earnings call, with CFO Karleen Oberton adding, "although 90% of our business is doing well, our medical aesthetics business continues to lag."
Cowen analysts called out Cynosure revenue of $74 million being about $5 million below what they called "already very metered expectations."
The bank's analysts noted that better-than-expected diagnostics revenue drove the beat but added "revenue upside was more than offset by lower-than-expected margins."
They argued Hologic would have missed Wall Street's gross margin expectations even without headwinds like tariffs and foreign exchange, cited by company executives as non-recurring.
Despite those hang-ups, Jefferies analysts called the bump to molecular diagnostics notable, "considering that it came in the face of revised contracting and new competition in EU, most recently from Abbott's Alinity."
Hologic also sees potential for breast health to grow further, citing a proposed rule from FDA released in March that would update the Mammography Quality Standards Act.
"Proposed changes to the MQSA, which emphasize the importance of breast density, should drive further 3D conversion and prove to be an incremental positive for us if implemented," MacMillan said.
