LabCorp says 2013 will be tough, cuts 2012 outlook

Thu Oct 18, 2012 12:21pm EDT

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(Reuters) - Laboratory Corp of America Holdings (LH.N) said on Thursday it expects 2013 to be a difficult year as government payments for medical testing services decline and hospitals continue to take more testing in house.

The volume of medical tests has fallen at LabCorp and its main competitor Quest Diagnostics as the U.S. government, insurers, corporations and consumers increasingly question which tests are absolutely necessary.

Also, as healthcare reform takes hold, hospitals are buying physician groups, which then order tests done in house, also hurting the lab companies.

LabCorp's view of the environment underscored Quest's report on Wednesday, which also painted a difficult picture.

LabCorp lowered its growth forecast for 2012 revenues to 2.5 percent from a range of 2 percent to 3 percent. The new outlook also includes a 1 percent gain from growth in its newly purchased Medtox testing business, which does specialized tests.

LabCorp, whose shares fell 3 percent in morning trading, said that it does not see a return to the 4 percent to 6 percent growth for which the industry was once known.

"Given a very tough economic environment and tough utilization environment and a lot of pressure to reduce costs, we are struggling to grow, as are all healthcare businesses frankly," Chief Executive Officer David King said during a conference call with analysts on Thursday.

In 2014 and beyond, growth should improve, he said.

King also said that if the U.S. government goes ahead with a 2 percent across-the-board plan to slash spending to tackle the deficit and other slated government funding cuts come to pass, the company's 22 cents per share in earnings in 2013 was in danger. But, he emphasized that it is not yet known if those "fiscal cliff" related cuts will come through.

ADJUSTED EARNINGS RISE

The company's third-quarter came in slightly better than expected on an adjusted basis. Net earnings rose to $148.0 million, or $1.53 per share, in the third quarter from $134.3 million, or $1.31 per share, a year earlier.

Excluding special items, the company earned $1.76 per share. Analysts on average had expected $1.74, according to Thomson Reuters I/B/E/S.

The company said it now expected adjusted earnings of $6.88 to $6.93 per share for the year. Last quarter it trimmed five cents off the top end and said that range would be $6.80 to $7.00 per share.

Wells Fargo analyst Gary Lieberman said that the LabCorp results were mixed and that better-than-expected earnings per share figure was likely largely related to the company's tax rate.

In addition, he said the stock may have fallen because the operating income had been weaker than expected. The company's disclosure during the conference call that its outlook for a 2.5 percent revenue growth rate in 2012 would have been 1.5 percent excluding its recent acquisition may also have weighed on shares, Lieberman said.

The news comes one day after competitor Quest Diagnostics Inc (DGX.N) reported mixed results that drove down its shares.

LabCorp was off 2.6 percent, or $2.31, at $87.90 at midday on Thursday while Quest gained 61 cents to $60.36, both on the New York Stock Exchange.

(Reporting by Esha Dey in Bangalore and Caroline Humer in New York; Editing by Lisa Von Ahn, Sofina Mirza-Reid and Leslie Gevirtz)

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