10-QPeriod: Q3 FY2009

QUEST DIAGNOSTICS INC Quarterly Report for Q3 Ended Sep 30, 2009

Filed October 27, 2009For Securities:DGX

Summary

Quest Diagnostics Inc. (DGX) reported strong financial results for the third quarter and first nine months of 2009, demonstrating significant year-over-year growth in net revenues and operating income. Net revenues increased by 3.9% for the quarter and 2.9% for the nine-month period, driven by a 4.3% increase in revenue per requisition and growth in its core clinical testing business. The company also showed improved profitability, with operating income margins expanding due to effective cost management and a favorable revenue mix. Financially, Quest Diagnostics benefited from reduced interest expenses and a more efficient cost structure, leading to a substantial increase in net income attributable to stockholders. The company also managed its debt effectively, repaying portions of its borrowings while maintaining adequate liquidity. Despite ongoing legal and governmental investigations, the company has resolved significant past issues, such as the NID settlement, and continues to focus on operational efficiency and strategic growth.

Financial Highlights

53 data points
Beta

Revenue

$1.90B

42.1% Gross Margin

Net Income

$192.22M

10.1% Net Margin

EPS (Diluted)

$1.02

Total Assets

$8.37B

Cash & Equivalents

$247.03M

Free Cash Flow

$332.51M

Financial Statements
Beta
Revenue$1.90B
Cost of Revenue$1.10B
Gross Profit$799.61M
SG&A Expenses$441.57M
Operating Expenses$1.55B
Operating Income$348.28M
Interest Expense-$34.76M
Net Income$192.22M
EPS (Basic)$1.03
EPS (Diluted)$1.02
Shares Outstanding (Basic)185.12M
Shares Outstanding (Diluted)187.16M

Key Highlights

  • 1Net revenues increased by 3.9% to $1.9 billion for the third quarter and 2.9% to $5.6 billion for the first nine months of 2009, compared to the prior year periods.
  • 2Income from continuing operations increased to $192 million ($1.02/share) for Q3 2009 and $549 million ($2.91/share) for the nine months ended Sept 30, 2009, up from $160 million ($0.81/share) and $463 million ($2.35/share) respectively.
  • 3Operating income margin improved to 18.4% for Q3 2009 and 18.3% for the nine months, up from 17.4% and 16.6% respectively, driven by cost efficiencies and favorable revenue mix.
  • 4Cost of services and selling, general, and administrative expenses as a percentage of net revenues decreased, indicating improved operational efficiency.
  • 5The company resolved a significant federal government investigation related to NID, making a $308 million settlement payment in Q2 2009, which had been previously reserved.
  • 6Quest Diagnostics repurchased approximately 7.5 million shares of common stock for $350 million during the first nine months of 2009 and had $150 million remaining under its share repurchase authorization at the end of the period.
  • 7Interest expense decreased by $10 million for the quarter and $27 million for the nine months, primarily due to lower interest rates and reduced average outstanding debt.

Frequently Asked Questions

The primary driver of Quest Diagnostics' revenue growth was an increase in revenue per requisition, which rose by 4.3% for the third quarter of 2009. This was supported by a positive test mix and the benefit of the Medicare laboratory fee increase that took effect in January 2009.

Quest Diagnostics managed its operating costs effectively by implementing actions to reduce its cost structure, improve operating efficiency, and reduce workforce size. These efforts, coupled with higher revenue per requisition, led to cost of services and selling, general, and administrative expenses decreasing as a percentage of net revenues.

Quest Diagnostics finalized the resolution of the federal government investigation related to NID on April 15, 2009, paying $308 million, which had been previously reserved. This settlement, while a significant cash outflow, resolved a major past legal issue, allowing the company to focus on current operations and future growth. The impact on discontinued operations for the period reflects the finalization of these matters.

Quest Diagnostics is actively managing its debt through repayments and refinancing where appropriate, benefiting from lower interest rates. The company maintains access to credit facilities and relies on operating cash flows to fund its capital expenditures, dividends, and share repurchases, indicating a strong liquidity position and financial flexibility for future operations and growth.