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Laboratory Corp. of America Holdings Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: October 31, 2011 05:50PM

Laboratory Corp. of America Holdings (LH) filed Quarterly Report for the period ended 2011-09-30. Laboratory Corp. Of America Holdings has a market cap of $8.79 billion; its shares were traded at around $86.87 with a P/E ratio of 13.77 and P/S ratio of 1.76. Laboratory Corp. Of America Holdings had an annual average earning growth of 15.8% over the past 10 years. GuruFocus rated Laboratory Corp. Of America Holdings the business predictability rank of 5-star.



Highlight of Business Operations:

Operating results for the nine months ended September 30, 2011 and 2010 were negatively impacted by severe winter weather primarily in the eastern and middle sections of the country during the first quarters of 2011 and 2010. The Company s testing facilities were not damaged by the severe winter weather; however, specimen volume was negatively impacted due to patients inability to visit doctors offices and patient service centers – the sources of the majority of testing volume. During the nine months ended September 30, 2011 and 2010 inclement weather had an impact on the Company s results, reducing volume by an estimated 0.5 and 0.6, respectively, and reducing revenue by an estimated $22.0 and $23.0, respectively.

The increase in net sales for the three months ended September 30, 2011 as compared with the corresponding 2010 period was driven primarily by incremental revenue from recent acquisitions including Genzyme Genetics (7.0% of growth in revenue and 6.0% of growth in revenue per requisition), the Company s organic volume growth and continued shift in test mix to higher priced genomic and esoteric tests along with growth in revenue per requisition for such testing, and increases in the Canadian exchange rate. Genomic and esoteric testing volume as a percentage of total volume increased from 22.9% in 2010 to 23.9% in 2011. Revenue per requisition and volume growth for genomic and esoteric testing was primarily due to the incremental revenue and volume from Genzyme Genetics. In 2010, revenue per requisition was impacted by the recognition of deferred revenue resulting from an amendment to a customer contract, which improved the 2010 revenue per requisition by approximately $0.50. Net sales of the Ontario joint venture were $75.8 for the three months ended September 30, 2011 compared to $67.6 in the corresponding 2010 period, an increase of $8.2, or 12.1%. Net sales of the Ontario joint venture were impacted by a weaker U.S. dollar in 2011 as compared with 2010. In Canadian dollars, net sales of the Ontario joint venture increased by CN$3.9, or 5.5%.

Selling, general and administrative (“SG&A”) expenses as a percentage of net sales decreased to 20.2% in the third quarter of 2011 compared to 21.2% in 2010. The decrease in SG&A as a percentage of net sales is primarily due to 2010 including acquisition related costs of $10.9. In addition, bad debt expense decreased to 4.5% of net sales in 2011 as compared with 4.8% in 2010 primarily due to improved collection trends resulting from process improvement programs within the Company s billing department and field operations.

The increase in net sales for the nine months ended September 30, 2011 as compared with the corresponding 2010 period was driven primarily by incremental revenue from recent acquisitions including Genzyme Genetics (7.5% of growth in revenue and 6.3% of growth in revenue per requisition), the Company s organic volume growth and continued shift in test mix to higher priced genomic and esoteric tests along with growth in revenue per requisition for such testing, and increases in the Canadian exchange rate. Genomic and esoteric testing volume as a percentage of total volume increased from 22.7% in 2010 to 23.8% in 2011. Revenue per requisition and volume growth for genomic and esoteric testing was primarily due to the incremental revenue and volume from Genzyme Genetics. In 2010, revenue per requisition was impacted by the recognition of deferred revenue resulting from an amendment to a customer contract, which improved the 2010 revenue per requisition by approximately $0.17. Net sales of the Ontario joint venture were $230.7 for the nine months ended September 30, 2011 compared to $207.6 in the corresponding 2010 period, an increase of $23.1, or 11.1%. Net sales of the Ontario joint venture were impacted by a weaker U.S. dollar in 2011 as compared with 2010. In Canadian dollars, net sales of the Ontario joint venture increased by CN$10.3, or 4.8%.

Selling, general and administrative (“SG&A”) expenses as a percentage of net sales increased to 21.3% in the nine month period of 2011 compared to 20.5% in 2010. The increase in SG&A as a percentage of net sales is primarily due to the settlement of the Hunter Labs litigation in California for $34.5 ($49.5 settlement less previously recorded reserves of $15.0), $1.1 in legal costs associated with the planned acquisition of Orchid Cellmark (2010 included $10.9 of acquisition related costs), and expenses from recently acquired operations that have not been fully integrated into the Company s operating cost structure as of September 30, 2011. As an offset to the increase in SG&A as a percentage of net sales, bad debt expense decreased to 4.6% of net sales in 2011 as compared with 4.9% in 2010 primarily due to improved collection trends resulting from process improvement programs within the Company s billing department and field operations.

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