Laboratory Corporation of America® Holdings Announces 2014 Fourth Quarter and Full Year Results and Provides 2015 Guidance
- Strong Q4 volume drives sales of
$1.5 billion - Diluted Q4 EPS of
$1.39 ; Adjusted Q4 EPS of$1.65 - Q4 Operating Cash Flow of approximately
$214 million - Q4 Free Cash Flow of approximately
$167 million - Announces Project LaunchPad, its enterprise-wide business process improvement initiative
- 2015 Adjusted EPS guidance of
$7.35 - $7.70 , inclusive of Covance as ofFebruary 19, 2015
Fourth Quarter Results
Sales for the quarter were approximately
Operating income for the quarter was
Net earnings for the fourth quarter were
“We are pleased with our fourth quarter operating performance, highlighted by solid organic growth and adjusted operating margin improvement. We are excited about the opportunity in 2015 and the improvement that our LaunchPad initiative will bring to the business,” said
Since
- Acquired Covance, an industry leading comprehensive drug development company, for approximately
$5.7 billion , net of cash acquired; - Acquired LipoScience, a premier esoteric laboratory focused on personalized diagnostics for cardiovascular and metabolic disorders, for approximately
$85.3 million ; - Announced Project LaunchPad, its enterprise-wide business process improvement initiative, which is expected to achieve net savings in excess of
$150 million over the next three years; - Launched Enlighten Health Genomics’ ExomeReveal, a service that provides genome-wide interpretation for children with serious childhood genetic diseases as well as additional diagnostic information for patients of any age through Next-Generation Sequencing technology;
- Continued the commercial roll-out of the Beacon LBS program, providing physicians with point of care decision support to assist in test and lab selection;
- Raised approximately
$3.9 billion in long-term debt to finance the Covance acquisition; and - Secured a new
$1 billion , five-year revolving credit facility providing financial flexibility.
Operating cash flow for the fourth quarter was
Full Year Results
Sales for 2014 were approximately
Operating income for 2014 was
Net earnings for 2014 were
Operating cash flow for 2014 was
Outlook for 2015
The Company’s guidance for 2015 includes the benefits from the Covance acquisition as of
Guidance
- Total revenue growth (assuming foreign exchange rates effective as of
January 31, 2015 ) of approximately 40% to 44%, after adjusting for approximately 160 basis points of negative currency impact. Revenue growth in the clinical laboratory business of approximately 3% to 5%. Revenue growth in the Covance business of approximately 4% to 6% (versus full year 2014 revenue), after adjusting for approximately 330 basis points of negative currency impact. - Adjusted EPS of
$7.35 to $7.70 , an increase of approximately 8% to 13% versus the prior year, which includes accretion of approximately$0.35 to$0.40 to earnings in 2015 from the acquisition of Covance. The Company expects to have approximately 102 million total weighted-average shares outstanding in 2015, after issuing approximately 15.3 million shares for the Covance transaction. - Operating cash flow of
$1,075 million to $1,100 million , with capital expenditures between$325 million and $350 million . As a result, free cash flow is between$725 million and $775 million , an increase from$536 million in 2014. Free cash flow in 2015 is burdened by approximately$90 million of net non-recurring items related to the Covance acquisition. - Free cash flow will be used to pay down debt and for tuck-in acquisitions. The Company has temporarily suspended its share repurchase program until it approaches its target leverage ratio of 2.5 times debt to EBITDA.
Covance
- The Company paid approximately
$5.7 billion for Covance, net of cash acquired. To finance the acquisition, the Company raised approximately$3.9 billion in long-term debt, and issued approximately 15.3 million shares of LabCorp common stock to Covance shareholders. - The
$3.9 billion of acquisition-related debt has a weighted-average maturity of approximately 12 years and a blended interest rate of approximately 3.2%. - The Company expects cost synergies from business optimization, corporate overhead and purchasing and logistics in excess of
$100 million within three years, with associated one-time costs of approximately$50 million . The Company expects synergies in 2015 of approximately$35 million , with associated one-time costs of approximately$20 million .
Project LaunchPad
- Project LaunchPad will re-engineer the Company’s systems and processes, leverage technological advancements, create a sustainable, more efficient business model, and improve the experience of all stakeholders.
- The Company expects this initiative to drive net savings in excess of
$150 million over the next three years, with associated one-time costs of approximately$30 million . The Company expects net savings from this initiative in 2015 of approximately$50 million , with associated one-time costs of approximately$15 million .
Use of Adjusted Measures
The Company has provided in this press release and accompanying tables “adjusted” financial information that has not been prepared in accordance with GAAP, including Adjusted EPS, Adjusted Operating Income, and Free Cash Flow. The Company believes these adjusted measures are useful to investors as a supplement to, but not as a substitute for, GAAP measures, in evaluating the Company’s operational performance. The Company further believes that the use of these non-GAAP financial measures provides an additional tool for investors in evaluating operating results and trends, and growth and shareholder returns, as well as in comparing the Company’s financial results with the financial results of other companies. However, the Company notes that these adjusted measures may be different from and not directly comparable to the measures presented by other companies. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the tables accompanying this press release.
The Company today is furnishing a Current Report on Form 8-K that will include additional information on its business and operations. This information will also be available on the Company's website. Analysts and investors are directed to the Current Report on Form 8-K and the website to review this supplemental information.
A conference call discussing LabCorp's quarterly results will be held today at
About LabCorp®
This press release contains forward-looking statements including with respect to estimated 2015 guidance and the impact of various factors on operating results. Each of the forward-looking statements is subject to change based on various important factors, including without limitation, competitive actions in the marketplace, adverse actions of governmental and other third-party payers and the results from the Company’s acquisition of Covance. Actual results could differ materially from those suggested by these forward-looking statements. Further information on potential factors that could affect LabCorp’s operating and financial results is included in the Company’s Form 10-K for the year ended
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES | ||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||||||||
(Dollars in Millions, except per share data) | ||||||||||||||||||||||||||
For the Three Months Ended | For the Year End | |||||||||||||||||||||||||
December 31 | December 31 | |||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||||
Net sales | $ | 1,512.7 | $ | 1,437.0 | $ 6,011.6 | $ 5,808.3 | ||||||||||||||||||||
Cost of sales | 966.2 | 910.9 | 3,808.5 | 3,585.1 | ||||||||||||||||||||||
Gross profit | 546.5 | 526.1 | 2,203.1 | 2,223.2 | ||||||||||||||||||||||
Selling, general and administrative expenses | 309.7 | 285.7 | 1,198.2 | 1,128.8 | ||||||||||||||||||||||
Amortization of intangibles and other assets | 15.4 | 21.4 | 76.7 | 81.7 | ||||||||||||||||||||||
Restructuring and other special charges | 2.4 | 4.0 | 17.8 | 21.8 | ||||||||||||||||||||||
Operating income | 219.0 | 215.0 | 910.4 | 990.9 | ||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||
Interest expense | (32.1 | ) | (24.2 | ) | (109.5 | ) | (96.5 | ) | ||||||||||||||||||
Equity method income, net | 3.9 | 4.6 | 14.3 | 16.9 | ||||||||||||||||||||||
Investment income | 0.2 | - | 1.1 | 2.2 | ||||||||||||||||||||||
Other, net | (3.5 | ) | (1.2 | ) | 10.4 | 2.1 | ||||||||||||||||||||
Earnings before income taxes | 187.5 | 194.2 | 826.7 | 915.6 | ||||||||||||||||||||||
Provision for income taxes | 67.6 | 67.5 | 314.1 | 340.2 | ||||||||||||||||||||||
Net earnings | 119.9 | 126.7 | 512.6 | 575.4 | ||||||||||||||||||||||
Less: Net earnings attributable to the noncontrolling interest |
(0.3 | ) | (0.4 | ) | (1.4 | ) | (1.6 | ) | ||||||||||||||||||
Net earnings attributable to Laboratory Corporation of America Holdings |
$ | 119.6 | $ | 126.3 | $ 511.2 | $ 573.8 | ||||||||||||||||||||
Basic earnings per common share | $ | 1.41 | $ | 1.46 | $ 6.03 | $ 6.36 | ||||||||||||||||||||
Diluted earnings per common share | $ | 1.39 | $ | 1.43 | $ 5.91 | $ 6.25 | ||||||||||||||||||||
Weighted average basic shares outstanding | 84.6 | 86.7 | 84.8 | 90.2 | ||||||||||||||||||||||
Weighted average diluted shares outstanding | 86.3 | 88.3 | 86.4 | 91.8 |
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES | |||||||||||||||
CONSOLIDATED BALANCE SHEETS | |||||||||||||||
(Dollars in Millions, except per share data) | |||||||||||||||
December 31, | December 31, | ||||||||||||||
2014 | 2013 | ||||||||||||||
ASSETS | |||||||||||||||
Current assets: | |||||||||||||||
Cash and cash equivalents | $ | 580.0 | $ | 404.0 | |||||||||||
Accounts receivable, net of allowance for doubtful accounts of $211.6 and $198.3 at December 31, 2014 and 2013, respectively |
815.7 | 784.7 | |||||||||||||
Supplies inventories | 139.5 | 136.5 | |||||||||||||
Prepaid expenses and other | 157.5 | 106.9 | |||||||||||||
Deferred income taxes | - | - | |||||||||||||
Total current assets | $ | 1,692.7 | $ | 1,432.1 | |||||||||||
|
|||||||||||||||
Property, plant and equipment, net | 786.5 | 707.4 | |||||||||||||
Goodwill | 3,099.4 | 3,022.8 | |||||||||||||
Intangible assets, net | 1,475.8 | 1,572.0 | |||||||||||||
Joint venture partnerships and equity method investments | 92.6 | 88.5 | |||||||||||||
Other assets, net |
154.8 | 143.1 | |||||||||||||
Total assets | $ | 7,301.8 | $ | 6,965.9 | |||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||||
Current liabilities: | |||||||||||||||
Accounts payable | $ | 282.3 | $ | 304.5 | |||||||||||
Accrued expenses and other | 341.4 | 310.0 | |||||||||||||
Deferred income taxes | 5.5 | 9.9 | |||||||||||||
Current portion of long-term debt | 347.1 | 111.3 | |||||||||||||
Total current liabilities | 976.3 | 735.7 | |||||||||||||
Long-term debt, less current portion | 2,682.7 | 2,889.1 | |||||||||||||
Deferred income taxes and other tax liabilities | 530.4 | 563.9 | |||||||||||||
Other liabilities | 274.2 | 266.5 | |||||||||||||
Total liabilities | 4,463.6 | 4,455.2 | |||||||||||||
Commitments and contingent liabilities | - | - | |||||||||||||
Noncontrolling interest | 17.7 | 19.4 | |||||||||||||
Shareholders' equity: | |||||||||||||||
Common stock | 10.4 | 10.5 | |||||||||||||
Additional paid-in capital | - | - | |||||||||||||
Retained earnings | 3,786.1 | 3,373.5 | |||||||||||||
Less common stock held in treasury | (965.5 | ) | (958.9 | ) | |||||||||||
Accumulated other comprehensive income | (10.5 | ) | 66.2 | ||||||||||||
Total shareholders' equity | 2,820.5 | 2,491.3 | |||||||||||||
Total liabilities and shareholders' equity | $ | 7,301.8 | $ | 6,965.9 |
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES | |||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||||
For the Three Months Ended | Year Ended | ||||||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||||||||||
Net earnings | $ | 119.9 | $ | 126.9 | $ | 512.6 | $ | 575.4 | |||||||||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|||||||||||||||||||||||
Depreciation and amortization | 63.5 | 59.8 | 245.5 | 230.1 | |||||||||||||||||||
Stock compensation | 10.6 | 8.4 | 45.7 | 37.3 | |||||||||||||||||||
(Gain) loss on sale of assets | 3.5 | 0.4 | (12.5 | ) | (3.9 | ) | |||||||||||||||||
Accreted interest on zero-coupon subordinated notes | 0.5 | 0.5 | 2.0 | 2.3 | |||||||||||||||||||
Cumulative earnings less than (in excess of) distributions from equity affiliates |
(2.5 | ) | (2.5 | ) | (5.8 | ) | (4.2 | ) | |||||||||||||||
Deferred income taxes | 31.2 | 27.9 | 27.7 | 56.2 | |||||||||||||||||||
Change in assets and liabilities: | |||||||||||||||||||||||
(Increase) decrease in accounts receivable, net | 28.6 | 28.0 | (31.1 | ) | (67.5 | ) | |||||||||||||||||
(Increase) decrease in inventories | 1.0 | (9.7 | ) | (0.3 | ) | (15.3 | ) | ||||||||||||||||
(Increase) decrease in prepaid expenses and other | (14.6 | ) | (27.0 | ) | (12.9 | ) | (32.3 | ) | |||||||||||||||
Increase (decrease) in accounts payable | (5.0 | ) | 35.6 | (21.2 | ) | 60.8 | |||||||||||||||||
Increase (decrease) in accrued expenses and other | (23.0 | ) | 0.4 | (10.7 | ) | (20.2 | ) | ||||||||||||||||
Net cash provided by operating activities | 213.7 | 248.7 | 739.0 | 818.7 | |||||||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||||||||
Capital expenditures | (46.3 | ) | (59.6 | ) | (203.5 | ) | (202.2 | ) | |||||||||||||||
Proceeds from sale of assets | 0.5 | 0.5 | 1.4 | 1.1 | |||||||||||||||||||
Proceeds from sale of investments | (0.1 | ) | - | 31.6 | 7.5 | ||||||||||||||||||
Investments in equity affiliates | (7.3 | ) | (3.2 | ) | (20.2 | ) | (6.5 | ) | |||||||||||||||
Acquisitions of businesses, net of cash acquired | (94.1 | ) | (50.5 | ) | (159.4 | ) | (159.5 | ) | |||||||||||||||
Net cash used for investing activities | (147.3 | ) | (112.8 | ) | (350.1 | ) | (359.6 | ) | |||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||||||||
Proceeds from senior notes offerings | - | 700.0 | - | 700.0 | |||||||||||||||||||
Proceeds from revolving credit facilities | - | - | - | 412.0 | |||||||||||||||||||
Payments on revolving credit facilities | - | (372.0 | ) | - | (412.0 | ) | |||||||||||||||||
Payments on zero-coupon subordinated notes | (2.1 | ) | (0.2 | ) | (18.9 | ) | (21.5 | ) | |||||||||||||||
Payments on long-term debt | - | - | - | (350.0 | ) | ||||||||||||||||||
Debt issuance costs | (24.0 | ) | (9.3 | ) | (24.1 | ) | (9.3 | ) | |||||||||||||||
Payments on long-term lease obligations | (0.8 | ) | (0.4 | ) | (1.4 | ) | (0.4 | ) | |||||||||||||||
Noncontrolling interest distributions | (0.3 | ) | (0.3 | ) | (1.2 | ) | (0.9 | ) | |||||||||||||||
Deferred payments on acquisitions | (1.5 | ) | - | (6.7 | ) | (5.6 | ) | ||||||||||||||||
Tax benefit adjustments related to stock based compensation | 0.5 |
2.3 |
5.9 |
11.0 |
|||||||||||||||||||
Net proceeds from issuance of stock to employees | 8.5 | 25.4 | 114.8 | 174.0 | |||||||||||||||||||
Purchase of common stock | (39.1 | ) | (250.1 | ) | (269.0 | ) | (1,015.6 | ) | |||||||||||||||
Net cash used for financing activities | (58.8 | ) | 95.4 | (200.6 | ) | (518.3 | ) | ||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (3.3 | ) | (1.4 | ) | (12.3 | ) | (3.6 | ) | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | 4.3 | 229.9 | 176.0 | (62.8 | ) | ||||||||||||||||||
Cash and cash equivalents at beginning of period | 575.7 | 174.1 | 404.0 | 466.8 | |||||||||||||||||||
Cash and cash equivalents at end of period | $ | 580.0 | $ | 404.0 | $ | 580.0 | $ | 404.0 |
LABORATORY CORPORATION OF AMERICA HOLDINGS | |||||||||||||||||||
Reconciliation of Non-GAAP Financial Measures | |||||||||||||||||||
(in millions, except per share data) | |||||||||||||||||||
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||
Adjusted Operating Income |
2014 | 2013 | 2014 | 2013 | |||||||||||||||
Operating Income | $ | 219.0 | $ | 215.0 | $ | 910.4 | $ | 990.9 | |||||||||||
Restructuring and other special charges | 2.4 | 4.0 | 17.8 | 21.8 | |||||||||||||||
Consulting fees and CFO transition expenses | 13.2 | - | 23.4 | - | |||||||||||||||
Adjusted operating income | $ | 234.6 | $ | 219.0 | $ | 951.6 | $ | 1,012.7 | |||||||||||
Adjusted EPS |
|||||||||||||||||||
Diluted earnings per common share | $ | 1.39 | $ | 1.43 | $ | 5.91 | $ | 6.25 | |||||||||||
Restructuring and special items | 0.15 | 0.03 | 0.34 | 0.15 | |||||||||||||||
Amortization expense | 0.11 | 0.15 | 0.55 | 0.55 | |||||||||||||||
Adjusted EPS | $ | 1.65 | $ | 1.61 | $ | 6.80 | $ | 6.95 | |||||||||||
Free Cash Flow: |
|||||||||||||||||||
Net cash provided by operating activities | $ | 213.7 | $ | 248.7 | $ | 739.0 | $ | 818.7 | |||||||||||
Less: Capital expenditures | $ | (46.3 | ) | $ | (59.6 | ) | $ | (203.5 | ) | $ | (202.2 | ) | |||||||
Free cash flow | $ | 167.4 | $ | 189.1 | $ | 535.5 | $ | 616.5 |
Notes to Financial Tables
1) During the fourth quarter of 2014, the Company recorded net restructuring and special items of
In addition to these net restructuring charges, the Company recorded
In conjunction with the financing of the Covance transaction, the Company incurred
The after tax impact of these combined charges decreased net earnings for the three months ended
During the first three quarters of 2014, the Company recorded net restructuring and special items of
2) During the fourth quarter of 2013, the Company recorded net restructuring and other special charges of
During the first three quarters of 2013, the Company recorded net restructuring and other special charges of
The after tax impact of these combined charges decreased net earnings for the year ended
3) The Company continues to grow the business through acquisitions and uses Adjusted EPS (excluding restructuring, special items and amortization) as a measure of operational performance, growth and shareholder returns. The Company believes adjusting EPS for these items provides investors with better insight into the operating performance of the business. For the quarters ended
Source:
Laboratory Corporation of America® Holdings
Stephen Anderson, 336-436-5076
or
Paul Surdez, 609-452-4807
[email protected]