Record financials not enough: Sonic Healthcare (ASX:SHL) share price sinks post-earnings

Shares in Sonic Healthcare closed in the red on Monday as the company released its financial results for the half-year ended 31 December 2021.

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Key points

  • Sonic Healthcare reported its half-yearly earnings on Monday. 
  • Despite a period of record financial performance, it wasn't enough to get investors over the line and shares finished in the red. 
  • In the last 12 months, the Sonic Healthcare share price has climbed 9%. 

Shares in Sonic Healthcare Limited (ASX: SHL) finished the day down on Monday after the company released its financial results for the half year ended 31 December 2021.

The Sonic Healthcare share price finished the day 3.59% down at $36.25 on Monday after collapsing early in the session.

Sonic Healthcare share price slips despite strong growth

The company outlined several investment highlights, including:

  • Revenue growth of 7% to $4.8 billion
  • Earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 18% to $1.5 billion
  • Net profit growth of 22% to $828 million
  • Record financial performance driven by pandemic testing and base business growth
  • $585 million invested in synergistic acquisitions/joint ventures in the period with active pipeline of further opportunities
  • Base business revenue (ex-COVID testing) up 4.3% versus H1 FY2021 and 2.5% versus H1 FY2020 (constant currency, organic growth)
  • Gearing at record low level, approximately $1.4 billion of available liquidity, on-market share buy-back announced as part of active capital management
  • Dividend increase of 4 cents (11%) to 40 cents (100% franked) for the FY2022 interim dividend.

What else happened this half for Sonic?

Sonic's total revenue growth for the half year was 7%, "enhanced by COVID-19 testing revenue in Sonic's Laboratory division" the company said.

Excluding COVID-19 testing, base revenue grew by 4.3% versus the same period last year, and 2.5% versus H1  – what Sonic calls the pre-pandemic.

While sales grew this half, EBITDA also grew 18%, driven mainly by operating income growth of 20% in the company's laboratory division, again enhanced by COVID-19 testing.

As such, laboratory division margins lifted off by almost 400 basis points from 30.8% to 34.3%. However, radiology margins were lower "due to pandemic impacts and the relatively low margin of the acquired EMI business".

The company was pleased with the results that were seen vertically down throughout the profit and loss statement, particularly in terms of efficiency and growth.

"Net profit growth of 22% on 7% growth in revenue demonstrates the operating leverage in Sonic's businesses", the company remarked.

Management commentary

Speaking on the announcement, Sonic CEO Dr Colin Goldschmidt said:

Sonic Healthcare's 38,000 staff have produced outstanding operational and financial performances in the last six months through their unwavering commitment to the tenets of Sonic's Medical Leadership culture, promoting the provision of exceptional healthcare services. The COVID-19 pandemic continued to throw up new challenges on almost a daily basis, and our people responded magnificently. I sincerely thank all of our staff for their dedication and flexibility during these trying times.

What's next for Sonic?

Sonic announced on 21 February 2022 that it wanted to undertake an on-market share buy-back of its shares. It has the approval of up to $500 million, per the release.

Aside from that, no formal guidance was provided by the company.

Sonic Healthcare share price snapshot

In the last 12 months, the Sonic Healthcare share price has climbed 9.09%. This year to date, however, it has struggled and is down 22%.

Even in the past month, shares have fallen almost 7% and are sliding by around 3% over the previous week of trading.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Sonic Healthcare Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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