Hologic Inc. HOLX reported second-quarter fiscal 2016 adjusted earnings per share (EPS) of 47 cents, up 14.6% year over year. Adjusted EPS also beat the Zacks Consensus Estimate by a penny and exceeded the company's guidance of 45–46 cents. Notably, Hologic’s EPS grew more than double the rate of revenue in the fiscal second quarter, driven by low double-digit growth in its U.S. business as well as improvement in gross and operating margin figures. On a reported basis, the company recorded net income of $68.9 million or 24 cents per share, reflecting a solid year-over-year improvement of 44.1% or 41.2%, respectively. Revenues in Detail Revenues grossed $693.3 million in the quarter, up 5.8% year over year. The top line also comfortably exceeded the Zacks Consensus Estimate of $686 million and the company's estimation of $680–$690 million. At constant exchange rate (CER), revenue growth was 6.3%. Excluding the headwind from discontinued products, revenue growth was 7% at CER, in the second quarter. Solid growth in three of Hologic’s four business segments primarily drove the year-over-year growth in the top line. Geographically, the company witnessed strong revenue growth in the domestic market, which outweighed its weak performance in the international market. Evidently, revenues in the U.S. increased 10.6% year over year to $547.9 million, while international revenues declined 9.3% (up 7% at CER) to $145.4 million. Segments in Detail Sales at the Diagnostics segment (43.9% of total revenue) inched up 2.6% year over year (up 3.2% at CER) to $304.4 million in the quarter. Growth was primarily driven by global molecular diagnostics and cytology and perinatal revenues, which improved 3.5% and 5.8%, respectively, at CER. However, revenues from blood screening products dropped 2.4% at CER. The Breast Health segment (39.8%) improved 8% (up 8.4% at CER) to $275.8 million. Growth was primarily driven by strong domestic sales of breast imaging products, which rose 11.2% on the back of continuous strong adoption of Hologic’s Genius 3D mammography test. The GYN Surgical business (13.1%) grew 14.9% (up 15.9% at CER) to $90.9 million, on account of 29.2% (29.8% at CER) growth in MyoSure system sales and 8.1% ( up 9.3% at CER) growth in NovaSure system. Revenues from Skeletal Health (accounting for the rest) declined 8.5% (8.2% at CER) to $22.2 million, primarily due to adverse change in overseas distributor ordering patterns. Operational Update In the second quarter, Hologic’s gross margin expanded 420 basis points (bps) to 55.5%, while adjusted gross margin improved 240 bps to 65.8%. The adjusted gross margin expansion was driven by strong domestic sales growth, favorable product mix, and operational improvement. Hologic's adjusted operating expenses amounted to $221.2 million, up 12.9% year over year on account of continued investments in the company’s breast health and diagnostic marketing programs. Nevertheless, adjusted operating margin expanded 40 bps to 33.9%, owing to higher gross profit. Financial Update Hologic exited the reported quarter with cash and cash equivalents of $316.3 million, comparing favorably with $650.3 million reported at the end of the first quarter of fiscal 2016. Long-term debt (net of current portion) as on Mar 26, 2016 was $3.10 billion, compared with $3.24 billion at the end of the previous quarter. Operating cash flow in the quarter was $314.4 million, up 1%. With an aim to achieve its long standing goal of reduction net debt to 2.5 times EBITDA by the end of 2017, Hologic spent $311.4 million in the second quarter to repurchase convertible notes with the principle value of $226.6 million. Fiscal 2016 Guidance Hologic updated its guidance for fiscal 2016. Encouraged by its solid performance in the first half of fiscal 2016, the company has raised the lower end of its earlier announced revenue guidance and currently expects revenues in the range of $2.81–$2.83 billion (against the prior guidance of $2.80–$2.83 billion). This revenue guidance reflects annualized growth of 3.9%–4.6% on a reported basis and 4.6%–5.4% at CER. The current Zacks Consensus Estimate of $2.77 billion lies below the company provided guidance. Hologic has raised its EPS outlook for fiscal 2016. The company currently projects adjusted EPS in the range of $1.89–$1.91 for fiscal 2016 (reflecting annualized growth of 13.2%-14.4% and 14.6%–15.8% at CER), higher than the previous range of $1.86–$1.90 (reflecting annualized growth of 11.4%–13.8% and 13.1%–15.5% at CER). The current Zacks Consensus Estimate for adjusted EPS is pegged at $1.89, coinciding with the lower end of the guided range. For third-quarter fiscal 2016, Hologic expects revenues of $695–$705 million, representing annualized growth of 0.2%–1.6% and 0.6%–2% at CER. Adjusted EPS is projected at 47–48 cents (reported growth of 9.3%–11.6% and 10.1%–12.4% at CER). The current Zacks Consensus Estimate for third-quarter revenues and EPS are pegged at $715 million and 48 cents, respectively. Our Take Hologic ended second-quarter fiscal 2016 on a promising note, with both its top and bottom line exceeding the Zacks Consensus Estimate. The company’s strong cash balance position is expected to enable management to meet its long-term aim to make consistent debt payments in the quarters ahead. Moreover, we are impressed to note that despite the higher operating expenses, Hologic witnessed operating margin expansion. This reflects the company’s ability to generate additional operating leverage from growth in most of its most profitable products, even after making a handful of investments. The company’s raised outlook also encourages us, indicating the likelihood of additional expansion of Hologic’s business, going forward. On the flip side, a few of Hologic’s recent investments in certain R&D initiatives like developing a blood screening test for the Zika virus, might raise the company’s operating expenses in the second half of 2016. Zacks Rank & Other Key Picks Hologic presently carries a Zacks Rank #2 (Buy). Other favorably ranked medical stocks are NuVasive, Inc. NUVA, Orthofix International N.V. OFIX and Boston Scientific Corp. BSX. While Nuasive and Orthofix sport a Zacks Rank #1 (Strong Buy), Boston Scientific carries a Zacks Rank #2. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report HOLOGIC INC (HOLX): Free Stock Analysis Report BOSTON SCIENTIF (BSX): Free Stock Analysis Report ORTHOFIX INTL (OFIX): Free Stock Analysis Report NUVASIVE INC (NUVA): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research