NEW YORK – Hologic said Thursday that it is trying to mitigate between $20 million and $25 million per quarter in tariff-related costs and forecast that its business in China, already small to start with, will further diminish during fiscal 2025.
Additionally, the Trump administration's cuts to international aid have reduced the firm's revenues from HIV testing in Africa, and company officials said that they doubt the business will bounce back.
Hologic Chief Operating Officer Essex Mitchell said in a conference call on Thursday to discuss the company's Q2 financial results that most of the company's exposure to tariffs comes from its Surgical and Interventional Breast products that are made in Costa Rica and trade with China, including US-made products that are sold in China. He noted that the vast majority of Hologic's products are made in the US.
The company further clarified in a 10-Q filing with the US Securities and Exchange Commission that it also sources raw materials and components from China, and at least some of those products are subject to higher tariff rates than the Trump administration's baseline 10 percent tariff rate on imports to the US.
While the company's Gynesonics and Skeletal health businesses use third-party manufacturers in Mexico, the firm expects products in Mexico will be substantially exempt from tariffs under the United States-Mexico-Canada Agreement (USMCA) that took effect in 2020, Mitchell said.
Hologic's estimates on increased costs don't include the higher prices that suppliers could seek to pass on from their own exposure to tariffs or any efforts underway within Hologic to mitigate the effects of the tariffs, he added.
"In the short term, we do not anticipate much pricing flexibility since most of our affected sales are made under long-term contracts," Mitchell said.
Hologic CFO Karleen Oberton added that the company expects a $20 million drop in its revenue from China during fiscal-year 2025, to a total of $50 million, "which we believe largely de-risks us from future geopolitical turmoil."
For its second fiscal quarter, Hologic reported diagnostics revenues rose 1 percent year over year on growth in the company's molecular diagnostics business with strong sales of its women's health, respiratory, and oncology tests.
However, the firm lowered its EPS guidance for the full fiscal-year 2025 in response to the Trump administration's tariffs and other "geopolitical conditions." The firm said it expects EPS in the range of $2.47 to $2.57 compared to a previous prediction of EPS in the range of $3.51 to $3.61, and it expects non-GAAP EPS in the range of $4.15 to $4.25, down from an earlier guidance of $4.25 to $4.35.
The company reaffirmed that it expects full fiscal-year 2025 revenues in the range of $4.05 billion to $4.10 billion.
For the quarter ended March 29, the Marlborough, Massachusetts-based company said that its total revenues fell 1 percent to $1.01 billion compared to $1.02 billion a year ago, beating Wall Street's consensus estimate of $1.00 billion.
"Both revenue and non-GAAP EPS finished at the high ends of our guidance ranges, driven by our diagnostics and skeletal businesses, strong profitability, share buybacks, and a slightly lower tax rate," Hologic CEO Steve MacMillan said in a statement.
He said on the conference call that Hologic also is strengthening its business development, R&D, and quality operations as well as adding personnel with expertise in the company's end markets. He noted that the firm is also eyeing potential M&A deals.
"We continue to search for acquisitions and investments similar to recent deals like Endomagnetics, Gynesonics, and Maverix, which are performing well," he said.
Company officials said in February during the fiscal Q1 conference call that M&A is expected to be a key driver of growth.
The company reported that its diagnostics revenues rose to $453.6 million in the recently completed quarter from $450.1 million in fiscal Q2 2024. Organically, its diagnostics revenues were up 5 percent, excluding COVID-19 testing, divested business, and recent acquisitions.
Its molecular diagnostics revenues were up 1 percent year over year to $326.0 million from $322.7 million. Organically, molecular diagnostics revenues jumped 7 percent.
The firm said that the growth in its molecular diagnostics revenues reflect rising sales of its bacterial vaginosis, Candida vaginitis, and Trichomonas vaginalis assays as well as its respiratory assays and Biotheranostics oncology tests.
Mitchell said that Hologic's diagnostics team has been working to raise awareness of its high-throughput vaginitis tests and establish reimbursement from payors. He said that vaginitis affects an estimated 20 million women in the US each year, yet less than 40 percent of them are tested, often using older, manual tests.
He noted that this year's severe flu season drove strong growth in revenues from the company's respiratory assays as well as rising interest in the PCR-based Panther Fusion modules. As customers add the module to their base model Panther instruments, they can further consolidate their testing onto Hologic's platform, including laboratory-developed tests. Oberton noted that about one-third of Panther customers have adopted Fusion modules.
Mitchell said that the growth in the diagnostics business also reflects strong adoption of its Biotheranostics Breast Cancer Index test that is used to help determine which patients will benefit from endocrine therapy.
The growth in the company's molecular testing business, though, was partly offset by a decline in HIV testing in Africa due to funding cuts to United States Agency for International Development, USAID, under the Trump administration. MacMillan said that Hologic doesn't expect that testing to rebound, and Mitchell added that the infrastructure to deliver those tests "is effectively broken on the continent" as the personnel who had administered the tests are no longer present.
Oberton had said in February's Q1 conference call that the Trump administration's freeze on foreign aid had disrupted HIV testing under the President's Emergency Plan for AIDS Relief, with a potential $30 million reduction in revenue during the fiscal year.
She said Thursday that Hologic's diagnostics revenues are still expected to grow in the mid-single digits for the year, excluding COVID-19 revenues. COVID-19 assay sales are expected to total between $35 million and $40 million in the fiscal year, and Covid-19-related revenues are expected to total between $100 million and $105 million in FY 2025.
Hologic's cytology and perinatal testing revenues fell 2 percent year over year to $118.5 million from $120.5 million. Mitchell said that modest growth in the US was offset by a low-single-digit decline internationally due to a physician strike in Korea and lower hospital spending in China.
Revenues from the company's smaller blood screening business leaped 32 percent to $9.1 million from $6.9 million.
Meanwhile, the company's Breast Health revenues fell 7 percent $356.2 million from $384.6 million a year ago. The firm's GYN Surgical revenues rose 4 percent to $162.5 million from $156.0 million.
Skeletal Health revenues jumped 22 percent year over year during the quarter to $33 million from $27.1 million. Hologic said in February that during fiscal Q1 it had resumed shipments of some Horizon DXA systems following a temporary halt last year, and the business was expected to ramp up to normal capacity by Q3.
Hologic posted a net loss of $17.4 million, or $.08 per share, compared to net income of $169.9 million, or $.72 per share, in Q2 2024. The firm reported adjusted EPS of $1.03, topping analysts' estimate of $1.02.
The company trimmed its R&D spending by 18 percent to $61.5 million from $74.6 million a year ago, and it increased its SG&A spending by 12 percent to $274.1 million from $244.6 million in Q2 2024.
Hologic ended the quarter with $1.43 billion in cash and cash equivalents and $192 million in short-term investments.
In morning trading Friday on the Nasdaq, Hologic's stock was down 7 percent at $53.17.