10-KPeriod: FY2012

QUEST DIAGNOSTICS INC Annual Report, Year Ended Dec 31, 2012

Filed February 27, 2013For Securities:DGX

Summary

Quest Diagnostics Inc. (DGX) filed its 2012 annual report on February 27, 2013, detailing a company-wide strategic overhaul aimed at refocusing on diagnostic information services, driving operational excellence, and restoring growth. The company reported $7.4 billion in net revenues for 2012 and processed approximately 147 million test requisitions, highlighting its significant scale as the world's leading provider of diagnostic testing information services. Key to their strategy is the 'Invigorate' cost excellence program, targeting substantial annual savings, and 'Project Restore' focused on profitable revenue growth. Quest Diagnostics is also simplifying its organizational structure and emphasizes disciplined capital deployment, including a significant increase in its quarterly dividend. The company aims to leverage its extensive network, broad test menu (over 3,000 tests), and scientific expertise to drive innovation, particularly in areas like personalized medicine and companion diagnostics, positioning itself for long-term growth in an evolving healthcare landscape.

Financial Highlights

54 data points
Beta

Revenue

$7.38B

40.9% Gross Margin

Net Income

$556.00M

7.5% Net Margin

EPS (Diluted)

$3.46

Total Assets

$9.28B

Cash & Equivalents

$296.00M

Free Cash Flow

$1.00B

Financial Statements
Beta
Revenue$7.38B
Cost of Revenue$4.37B
Gross Profit$3.02B
SG&A Expenses$1.75B
Operating Expenses$6.18B
Operating Income$1.20B
Net Income$556.00M
EPS (Basic)$3.49
EPS (Diluted)$3.46
Shares Outstanding (Basic)159.00M
Shares Outstanding (Diluted)160.00M

Key Highlights

  • 1Quest Diagnostics generated $7.4 billion in net revenues and processed approximately 147 million test requisitions in 2012.
  • 2The company launched a new five-point business strategy in 2012 focused on diagnostic information services, operational excellence, growth restoration, organizational simplification, and disciplined capital deployment.
  • 3The 'Invigorate' cost excellence program is projected to deliver $500 million in annual savings by 2014, with further opportunities for $1 billion in savings beyond 2014.
  • 4Quest Diagnostics increased its quarterly common stock dividend by 76% in January 2013, signaling a commitment to returning capital to shareholders.
  • 5The company is the world leader in diagnostic information services with over 3,000 tests, a nationwide specimen collection network, and significant medical and scientific expertise (over 800 M.D.s and Ph.D.s).
  • 6Strategic focus includes expanding esoteric and gene-based testing, developing companion diagnostics for personalized medicine, and leveraging healthcare information technology solutions like Care360®.
  • 7The company is simplifying its organizational structure, expecting to eliminate three management layers and approximately 400-600 management positions by the end of 2013.

Frequently Asked Questions

Quest Diagnostics' primary strategic focus is on its core diagnostic information services business. This involves refining its portfolio, driving operational excellence through initiatives like the 'Invigorate' program for cost savings, and restoring growth through a multi-faceted approach including sales and marketing enhancements, expanding esoteric testing, and forging strategic partnerships with hospitals and integrated delivery networks (IDNs).

Quest Diagnostics is implementing a comprehensive cost excellence program called 'Invigorate,' which is expected to deliver $500 million in annual savings by 2014 compared to a 2011 baseline. This program focuses on six key areas: organization, information technology, procurement, service, lab, and billing excellence. Additionally, the company is simplifying its organizational structure by reducing management layers to enhance productivity and speed decision-making.

Quest Diagnostics is committed to disciplined capital deployment focused on increasing shareholder returns. This includes maintaining an investment-grade credit rating, using free cash flow to reduce debt, and returning capital to investors through dividends and share repurchases. Notably, the company significantly increased its quarterly dividend in January 2013 and expects this dividend to grow over time. Future growth investments will focus on value-creating 'fold-in' acquisitions and investments in science and innovation.

Key growth opportunities for Quest Diagnostics lie in expanding its esoteric and gene-based testing services, particularly in disease areas like cancer, cardiovascular, and neurology. The company also sees significant potential in personalized medicine, developing companion diagnostics, and leveraging its healthcare information technology solutions to enhance customer loyalty and provide integrated care management. International expansion is also a long-term growth objective.