10-QPeriod: Q1 FY2009

QUEST DIAGNOSTICS INC Quarterly Report for Q1 Ended Mar 31, 2009

Filed April 24, 2009For Securities:DGX

Summary

Quest Diagnostics reported solid financial performance for the first quarter ended March 31, 2009. Net revenues increased by 1.3% to $1.8 billion, primarily driven by a 2.2% growth in the core clinical testing business. This growth was achieved despite a decline in pre-employment drug testing volume due to reduced hiring and the exit from unprofitable laboratory management agreements. The company also saw a 4.1% increase in revenue per requisition, benefiting from a positive test mix and a Medicare laboratory fee increase. Profitability improved significantly, with operating income rising to $321 million from $280 million in the prior year, translating to an operating margin of 17.8% compared to 15.7%. This improvement was attributed to a more favorable revenue mix, cost containment measures, and efficiencies in billing and collections, which also led to a decrease in bad debt expense. Net income attributable to Quest Diagnostics stockholders increased to $167.1 million, or $0.88 per diluted share, up from $139.6 million, or $0.71 per diluted share, in the prior year. The company also repurchased approximately $250 million of its common stock during the quarter, demonstrating a commitment to returning capital to shareholders.

Financial Highlights

29 data points
Beta

Revenue

$1.81B

41.7% Gross Margin

Net Income

$167.10M

9.2% Net Margin

EPS (Diluted)

$0.88

Cash & Equivalents

$204.22M

Free Cash Flow

$233.15M

Financial Statements
Beta
Revenue$1.81B
Cost of Revenue$1.05B
Gross Profit$754.52M
SG&A Expenses$424.30M
Operating Expenses$1.49B
Operating Income$321.06M
Net Income$167.10M
EPS (Basic)$0.88
EPS (Diluted)$0.88
Shares Outstanding (Basic)189K
Shares Outstanding (Diluted)191K

Key Highlights

  • 1Net revenues increased by 1.3% to $1.8 billion in Q1 2009 compared to Q1 2008.
  • 2Operating income increased by 14.6% to $321 million, with operating margin improving to 17.8% from 15.7%.
  • 3Net income attributable to Quest Diagnostics stockholders rose to $167.1 million, an increase of 19.6% year-over-year.
  • 4Diluted earnings per share (EPS) increased to $0.88 from $0.71 in the prior year.
  • 5Cost of services as a percentage of net revenues decreased from 59.3% to 58.3%.
  • 6Selling, general and administrative expenses as a percentage of net revenues decreased from 24.4% to 23.5%.
  • 7The company repurchased $250 million of its common stock during the quarter.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in revenue per requisition, which rose by 4.1%. This was supported by a more favorable test mix and the Medicare laboratory fee increase effective January 1, 2009. The core clinical testing business also saw a 2.2% revenue increase.

The company effectively managed costs by reducing the cost of services as a percentage of revenue from 59.3% to 58.3%. This was achieved through operating efficiencies, workforce adjustments, and discrete cost containment actions. Selling, general, and administrative expenses also decreased as a percentage of revenue.

Quest Diagnostics finalized the resolution of the federal government investigation related to NID on April 15, 2009. The company paid $268 million in civil settlements and its subsidiary, NID, paid a $40 million fine, totaling $308 million. This amount was fully reserved and funded through existing cash and credit facilities. The company also expects to settle with states for approximately $6 million. A reserve of $319 million was established as of March 31, 2009 for these matters.

Quest Diagnostics demonstrated a commitment to returning capital to shareholders by repurchasing $250 million of its common stock during the quarter, following a Board authorization for an additional $500 million in share repurchases. The company also maintained its quarterly cash dividend of $0.10 per common share.