Shares of Sonic Healthcare Limited (ASX: SHL) have retreated marginally today after the Australia-based medical diagnostics group released its full-year earnings results, revealing a slump in earnings despite a lift in revenues.
For the year ended 30 June 2015, Sonic Healthcare posted a 7.3% lift in revenue compared to the prior year, with more than half of its revenue coming from overseas, and thus allowing the company to benefit from the weaker Australian dollar. At the same time however, the group's earnings before interest, tax, depreciation and amortisation (EBITDA) actually retreated 1% to $731 million.
The result was slightly higher than the Sonic's most recent forecast of $730 million, but well below its original guidance. Indeed, the group's performance through the year was hindered by issues impacting the Australian Pathology market including a rise in costs, lower volumes of patients than it initially expected and changes to fees for certain laboratory tests.
On a more positive note, Sonic said its European businesses produced outstanding results during the year and expects that trend to continue through the new financial year, tipping strong organic growth as well as a positive effect from recent acquisitions (including Medisupport from July 2015).
Net profit after tax (NPAT) for the period also came in below the average forecasts of analysts at $363 million compared to the $385 million reported for the 2014 financial year (FY14).
What Now?
Sonic Healthcare recently disappointed its shareholders when it announced that it lost an anticipated laboratory contract in Canada, which was thought to be worth north of CAD$200 million ($207 million) per year (for 15 or more years).
Although that is certainly a blow to the company's future prospects, investors should take comfort from the fact that Sonic Healthcare is still confident in its existing markets. As it stands, the healthcare group expects EBITDA in the range of $815 million and $840 million on a constant currency basis for FY16, which would represent a lift of between 11% and 15% from FY15's result.
Although Sonic is by no means a risk-free investment prospect, it could still be a reasonable way for investors to gain exposure to Australia's booming healthcare sector. The shares are currently trading for $20.06 and yield 3.5%, partially franked, after the company declared a final dividend of 41 cents per share.
