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Lab Industry Earnings Take a Beating in the Fourth Quarter

by | Feb 27, 2023 | News, Open Content

Drying COVID-19 testing demand drove revenues down, but not as much as expected.

As expected, diminishing demand for COVID-19 tests and tough macro economic conditions caused lab company earnings to tumble in the fourth quarter of 2022. Don’t expect things to improve any time soon, with Quest, Abbott, Labcorp, and other major lab companies projecting declines of 80 percent or more in global COVID-19 diagnostics sales. However, the one saving grace in all of this is that performance was in line with expectations; in fact, the losses weren’t even as bad as expected. There’s also grounds for optimism going forward.

Post-COVID Realities Drag Down Lab Earnings

All but 10 of the 23 major lab companies that had reported their earnings for the period October 1 to December 31, 2022 at the time we went to press saw their YOY revenues decline. The following figures provide some perspective on the year-long earnings decline trajectory: 

Overall YOY Revenue Growth, 2021 vs 2022

CompanyQ4 2022Q3 2022Q2 2022Q1 2022
Becton Dickinson-2%-2%+0.7%+2%

While it was recognized that the enormous COVID profits of FY 2020 and 2021 would be unsustainable, the expectation was that patients would eventually resume the medical care they delayed during the pandemic, driving a strong rebound in core testing that would at least partially offset the COVID losses.

But, so far, the big rebound in core lab testing hasn’t happened. One explanation for this is that rising copays, deductibles, and other costs are keeping patients home. Thus, in a January 2023 Gallup poll, 38 percent of Americans said that they had put off their medical needs due to costs in 2022, up 12 percent from 2021. 

Times are especially challenging for US companies that sell diagnostics products abroad. Markets are weak all around the world, especially in the crucial China market where COVID lockdowns have been the order of the day. Meanwhile, foreign exchange rates and the strong US dollar are exerting an enormous drag on sales, earnings, and profits. 

Earnings Correspond with and Even Exceed Expectations

We all knew the COVID bubble would burst—partly because the big test companies like Abbott, Quest, and Labcorp have been sounding the warning for months. As a result, the Q3 and Q4 earnings losses have caught few investors by surprise. Even better is that, so far at least, the losses haven’t been as big as projected. Thus, 75 percent of the reporting companies actually met or exceeded their top line Wall Street targets for Q4, in many cases by comfortable margins. Most of these companies also met their full year FY 2022 revenues targets.

Notable Lab Companies that Hit Their 2022 Q4 Wall Street Revenues Targets

CompanyActual RevenuesTarget Revenues
Thermo Fisher Scientific*$11.45 billion$10.43 billion
Abbot*$10.09 billion$9.67 billion
Danaher*$8.37 billion$7.90 billion
Becton Dickinson$4.59 billion$4.52 billion
Quest Diagnostics$2.33 billion$2.26 billion
Illumina*$1.08 billion$1.07 billion
Hologic$1.07 billion$1.00 billion
QuidelOrtho*$866.5 million$779.6 million
Waters*$858.5 million$833.2 million
Bruker*$708.4 million$680.1 million
Exact Sciences*$553.0 million$528.2 million
Qiagen$582.4 million$486.9 million
* Companies that also hit their full year FY 2022 revenues targets

However, Labcorp was among the companies that came in short of their Q4 earnings targets, along with Bio-Rad Laboratories, Bio-Techne, PerkinElmer, and Twist Bioscience. 

A Pathway for Growth in FY 2023

Although the rebound hasn’t been as dramatic as expected, non-COVID revenues are slowly creeping above pre-pandemic levels. Companies like Quest and Labcorp will likely turn to acquisitions to boost their revenues. Others are in a position to parlay their investment in COVID testing into strategic opportunity. 

Rapid, point-of-care testing appears to be an especially promising pathway to growth. One of the key players will be Abbott, which in delivering nearly 3 billion COVID-19 tests since the pandemic began, established a base in installed instruments, including the point-of-care ID NOW platform, which can be expanded to testing for other respiratory illnesses like influenza. In addition to an instruments base, many companies have also been able to use COVID testing during the pandemic to gain a toehold in new testing channels, such as physicians’ offices and at-home testing.

For the full version of this article, see our upcoming March 2023 Laboratory Industry Report.