Sonic Joins The Downgraders

By Glenn Dyer | More Articles by Glenn Dyer

Sonic Healthcare (SHL) yesterday joined the growing list of companies downgrading either their interim or full year profits and saw its shares sold off by nervy investors.

Sonic shares fell more than 6.6% to $17.18 after the annual meeting was told that the company had cut 2015 earnings guidance.

Sonic is a big medical services operator, especially pathology in Australia and off shore in the US, Canada and parts of Europe.

Citing low market volume growth in Australia in the first quarter, Sonic said earnings before interest, tax, depreciation and amortisation (EBITDA) would now grow by between 2% and 4% instead of the previous guidance of 5% given when the results were released in August.

That August forecast represented a sharp slow down on the 13.3% growth in earnings to $733 million on an EBITDA basis reported for 2013-14. Now earnings will hardly grow for the year, being flat in the first half and slightly higher in the second.

Sonic Healthcare said the low market volume growth in its Australian pathology business followed the federal budget co payment announcement, the increasing cost of running collection centres and unexpected targeted Medicare fee cuts announced in October.

And like quite a few companies, Sonic said earnings growth would be strongly weighted towards the second half of the year after a flat first half, pointing to volume levels which it said would return to trend levels in the second quarter.

SHL YTD – Sonic sold off on lower guidance

Sonic joins the likes of WDS, Seven Group Holdings, Seven West Media, Ainsworth Game Technology, ALS and more in reporting softer trading, and lowering either first half or full year earnings estimates.

And where these companies say first half revenue and earnings growth will be down, many are claiming they will make up the shortfall, or see a stronger performance in the June half of next year.

Offsetting the pain, Sonic pointed to help from an expected fall in interest expenses, which it forecasts to drop by 10% in the 2015 financial year.

The company says it expecting a tax rate of 25% in the 2015 financial year, well under the statutory 30% rate.

Sonic said it was seeing strong year-to-date performance in its European markets in Germany, the UK and Switzerland, while in the US volumes rose 4% in the year to October, but revenue growth had fallen.

Chairman Peter Campbell, who has indicated he is retiring this financial year, told the meeting that Sonic would continue to benefit from the expected growth in demand globally for diagnostic healthcare services.

“Our strategy is to continue to lead the consolidation of the markets in which we participate, increasing our market share both organically and through acquisitions,” he told the meeting. "This creates demand for Sonic’s services."

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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