Virus Testing Demand Swells Sonic Bottom Line

By Glenn Dyer | More Articles by Glenn Dyer

COVID-19 has been kind to the pathology group, Sonic Healthcare, in fact, it’s been a boon judging by the company’s first-quarter performance.

Sonic revealed on Wednesday that the pressure to maintain or even step up COVID-19 testing around the world was still boosting its top and bottom lines.

But the question is for how long? Is testing going to continue, become seasonal, or as we get on top of it fade away?

Sonic told the ASX in an update that revenue for the September quarter was up 29% to $2.1 billion compared to the $1.66 billion in the same period in 2019-20.

Sonic’s earnings jumped 71% to $580 million, helped by cost-cutting at the onset of the pandemic as well as high levels of COVID testing across Europe, the US, and Australia.

That saw shares in the lab and pathology operator hit a near month-high of $35.96 before easing a touch to end the day at $35.50, up 2.3%.

But despite the boom conditions Sonic continues to withheld earnings guidance for 2020-21 due to the ongoing level of uncertainty resulting from the pandemic.

Globally, Sonic said it provided 9 million tests, though it remains uncertain how long the current revenue growth rates will continue.

Both the company’s base business and COVID-19 testing volumes are expected to fluctuate in different markets as the pandemic evolves amid changing social restrictions, lockdowns, reduced clinical activity, new testing modes, and the emergence of viable vaccines.

As examples of the volatility, Sonic said its daily current volume of COVID-19 testing in Australia was significantly lower than it was at its peak and is only about 10% cent of Sonic’s global daily volumes. But Sonic’s COVID-19 testing volumes in Germany are currently peaking.

“The majority of Sonic’s divisions grew base business (excluding COVID-19 testing) revenues during the quarter, and cost savings initiatives that were implemented during the early days of the pandemic continue to provide benefits to earnings and margins,” Sonic said on Wednesday.

“Base business volumes in the USA and the UK remain below pre-pandemic levels (currently down in the ranges of 5-10% and 10-15% respectively). Base business performance in the quarter was augmented by substantial volumes of COVID-19 testing.”

Sonic said that the Australian Government “has recently extended to March 2021 Sonic’s contract (awarded in April 2020) to provide the dedicated pathology service for rapid sample collection and testing for COVID-19 in residential aged care facilities.”

“Over 2,700 residential aged care facilities across the country are eligible for this service, which is provided through Sonic’s national network of laboratories and collection teams.”

Sonic also revealed that it had been selected and funded by the US and UK governments to create additional COVID-19 PCR ‘surge’ testing capacity in preparation for the Northern Hemisphere winter.

“In these unprecedented times, Sonic’s global leadership teams continue to adapt and respond superbly to a fluid COVID-19 environment encompassing increased testing volumes, maintenance of rapid turnaround of results, evaluation of new testing platforms, global supply chain issues, different collection modalities, and necessary IT enhancements,” CEO Dr. Colin Goldschmidt told investors.

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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