10-QPeriod: Q3 FY2010

QUEST DIAGNOSTICS INC Quarterly Report for Q3 Ended Sep 30, 2010

Filed October 26, 2010For Securities:DGX

Summary

Quest Diagnostics Incorporated (DGX) reported its financial results for the third quarter and nine months ended September 30, 2010. For the quarter, the company saw a slight decrease in net revenues to $1.86 billion from $1.90 billion in the prior year. Income from continuing operations increased to $198 million, or $1.13 per diluted share, from $192 million, or $1.02 per diluted share, in the prior year, benefiting from lower operating costs, cost structure adjustments, and a favorable resolution of tax contingencies, partially offset by lower revenues. For the nine-month period, net revenues were $5.54 billion, a slight decrease from $5.61 billion in the prior year. Income from continuing operations rose to $556 million, or $3.09 per diluted share, from $549 million, or $2.91 per diluted share, in the prior year. The company highlighted increased revenue per requisition due to a higher mix of gene-based and esoteric testing, despite volume pressures and Medicare fee schedule adjustments. Significant share repurchases also contributed to the year-over-year earnings per share growth. The company continues to navigate the evolving healthcare landscape, including the impact of healthcare reform legislation, and remains focused on cost management and operational efficiency.

Financial Highlights

56 data points
Beta

Revenue

$1.86B

41.5% Gross Margin

Net Income

$198.07M

10.6% Net Margin

EPS (Diluted)

$1.13

Total Assets

$8.46B

Cash & Equivalents

$369.26M

Free Cash Flow

$282.63M

Financial Statements
Beta
Revenue$1.86B
Cost of Revenue$1.09B
Gross Profit$773.19M
SG&A Expenses$426.56M
Operating Expenses$1.53B
Operating Income$336.87M
Interest Expense-$36.47M
Net Income$198.07M
EPS (Basic)$1.14
EPS (Diluted)$1.13
Shares Outstanding (Basic)173.23M
Shares Outstanding (Diluted)174.31M

Key Highlights

  • 1Net revenues for the third quarter of 2010 decreased by 1.7% to $1.86 billion compared to the prior year.
  • 2Income from continuing operations increased to $198 million ($1.13 per diluted share) for the third quarter of 2010, up from $192 million ($1.02 per diluted share) in the prior year.
  • 3For the nine months ended September 30, 2010, net revenues were $5.54 billion, down 1.1% year-over-year.
  • 4Nine-month income from continuing operations increased to $556 million ($3.09 per diluted share) from $549 million ($2.91 per diluted share) in the prior year.
  • 5The company's clinical testing business, which constitutes over 90% of revenues, experienced a 1.7% revenue decrease in the quarter, with testing volume down 0.3%.
  • 6Share repurchases continue, with $750 million spent on treasury stock in the first nine months of 2010, contributing to higher earnings per share.
  • 7The company is evaluating the impact of the U.S. healthcare reform legislation, anticipating potential benefits from expanded coverage but also impacts from Medicare fee schedule reductions.

Frequently Asked Questions

For the third quarter ended September 30, 2010, Quest Diagnostics reported net revenues of $1.86 billion, a decrease of 1.7% compared to $1.90 billion in the same period of 2009. This decline was primarily driven by a 1.7% decrease in revenues from the clinical testing business, which accounts for over 90% of total revenues.

Quest Diagnostics demonstrated improved profitability. For the third quarter, income from continuing operations rose to $198 million ($1.13 per diluted share) from $192 million ($1.02 per diluted share) in the prior year. For the first nine months of 2010, income from continuing operations increased to $556 million ($3.09 per diluted share) from $549 million ($2.91 per diluted share) in the prior year. This improvement was attributed to cost-saving measures, reduced operating expenses, and a favorable tax resolution, which helped offset lower revenues.

Quest Diagnostics believes the U.S. healthcare reform legislation enacted in March 2010 will be a net positive for the industry in the long term due to expanded coverage and the elimination of patient cost-sharing for certain preventive services. However, the company also acknowledges potential negative impacts, such as annual reductions in the Medicare clinical laboratory fee schedule starting in 2011 and an excise tax on certain medical devices. The company is well-positioned to adapt to the evolving healthcare environment.

The company continued its share repurchase program, spending $750 million on treasury stock purchases in the first nine months of 2010. This program, along with a consistent quarterly dividend of $0.10 per share, reflects a commitment to returning capital to shareholders. As of September 30, 2010, the company had fully utilized its existing share repurchase authorization and announced a new $250 million authorization. The company also has significant borrowing capacity available under its credit facilities.