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What You'll Want to Know About LabCorp's Q3 Earnings Results

By Keith Speights - Oct 24, 2019 at 1:00PM

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The laboratory services giant beat Wall Street estimates but delivered only modest revenue growth.

Investors have to be pleased with how 2019 is going so far for Laboratory Corporation of America (LH 2.48%). The stock is handily beating the performance of the S&P 500 -- even after delivering only so-so second-quarter results in July. 

LabCorp announced its third-quarter results before the market opened on Thursday. Here's what you need to know about the laboratory services giant's latest quarterly update.

Person in a lab holding vial with blood sample

Image source: Getty Images.

By the numbers

LabCorp reported Q3 revenue of $2.93 billion, up 3.4% year over year. Analysts had estimated that the company's revenue for the third quarter would come in at $2.91 billion.

The company generated net income in the third quarter of $220.7 million, or $2.25 per share, based on generally accepted accounting principles (GAAP). This reflected a steep decline from the prior-year period, when LabCorp reported GAAP earnings of $318.8 million, or $3.10 per share. 

LabCorp announced adjusted net income in Q3 of $2.90 per share, up from adjusted earnings per share (EPS) of $2.74 in the same quarter of last year. It was also better than the consensus analysts' adjusted earnings estimate of $2.85 per share.

Behind the numbers

LabCorp's improving revenue was driven by acquisitions, which boosted revenue by nearly 3% year over year, and organic growth of 2.2%. The company's Covance drug development segment contributed the most impressive growth, with sales climbing 8.7% year over year to $1.18 billion. LabCorp's diagnostics segment raked in $1.76 billion, up slightly from the prior-year period's revenue of $1.75 billion.

What's behind the glaring decline in GAAP earnings? It resulted from a net gain from LabCorp selling off its food solutions business last year. That transaction boosted the company's earnings significantly in the prior-year period, causing an unfavorable year-over-year comparison.

The better earnings figure to use for comparison is LabCorp's adjusted EPS. On this front the company looked much better, with adjustments related to amortization, restructuring charges, and special items reflecting solid improvement from the previous year.

Looking ahead

LabCorp now anticipates revenue growth for full-year 2019 will be between 1.5% and 2% over 2018's revenue of $11.33 billion. This is an increase from the company's prior guidance of 1% to 2% revenue growth. LabCorp also projects that adjusted EPS for full-year 2019 will be between $11.20 and $11.30, a narrowing from the previous range of $11.10 to $11.40.

CEO David P. King stated that LabCorp occupies a "unique, differentiated market position in life sciences, giving us great optimism about our opportunity to grow the business and create shareholder value for the rest of 2019 and for many years to come."

But LabCorp's single-digit percentage revenue increase isn't enough to qualify it as a growth stock. The company doesn't pay a dividend, so it's not a great choice for income-seeking investors. With shares trading at less than 14 times expected earnings, LabCorp might be considered a value stock by some. It's not a tremendous bargain right now, though. The company needs quarterly updates more impressive than its Q3 results to make the stock a great pick to buy.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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