Hologic revenues boom but stock price dives

Earnings rose at Hologic in the second fiscal quarter of 2007 and the company raised its guidance for the year, leading to a heady market open for traders in the company's stock. But shares failed to follow through, and the stock plummeted from a height of $60 to within a few cents of $53 within a half hour. The ride continued as shares traded up and down throughout the morning, settling in a range between $54 and $56 by midday.

The stock price's erratic course was in contrast with the growth achieved by Hologic, which has consistently reported quarterly increases in earnings and revenues over the past several years as a result of rising demand for its Selenia full-field digital mammography system (FFDM).

"The digital market is continuing to expand, especially in the U.S.," said Hologic chief financial officer Glenn Muir in a teleconference following release of the second-quarter financials. "Digital has become the standard of care in the U.S. It is no longer a question of converting to digital but when."

Other makers of FFDM systems stand to benefit from this conversion, but Hologic is gaining the most, as evidenced by the company's 55% market share in the U.S., according to Muir.

"The acceleration of Selenia sales continues to drive earnings growth," he said, noting that the installation of 282 Selenia systems, itself a record, was primarily responsible for the company's good fortune in the period ending March 31. Setting more records, Hologic reported earnings of $21.6 million on revenues of $181.1 million.

Revenues were a whopping 79% better than the $100.1 million in 2Q 06 and net income was nearly double the net $11.2 million of the year-earlier period. As of March 31, the company had a backlog of 533 Selenia orders and a total equipment backlog of $216 million. During the quarter, Hologic paid off its line of credit while increasing its cash balance to more than $50 million.

In the conference call, Muir raised the company's financial outlook for 2007 from its previous forecast of $1.40 a share (including charges) on revenue of $700 million to $1.57 a share (including charges) on revenues of about $725 million. He cited continued demand for Selenia, and raised the number of expected orders in 2007 from the previously stated 1000 to 1100. If the company meets this increased expectation, it will have sold 545 more Selenia units than in 2006, representing between $160 million and $170 million in incremental revenue, according to Muir.

Much of Hologic's success in the year ahead will come from the growing popularity of its FFDM product, but Muir also pointed to contributions made by last year's three corporate acquisitions. These were Suros, a maker of breast biopsy devices, R2 Technology, a developer of computer aided detection software (which is sold separately or built into Selenia), and AEG, a provider of the digital detectors that go into the FFDM system.

"Suros and R2 are now fully integrated and we are capturing the sales synergies we were expecting," he said. "R&D and manufacturing benefits from AEG's in-house selenium coating expertise is just beginning to be recognized. We should see continuing improvements from AEG going forward."