10-QPeriod: Q1 FY2011

QUEST DIAGNOSTICS INC Quarterly Report for Q1 Ended Mar 31, 2011

Filed May 10, 2011For Securities:DGX

Summary

Quest Diagnostics Inc. (DGX) reported its first quarter 2011 financial results, indicating a challenging period marked by a significant net loss and increased operating expenses. While net revenues saw a slight increase of 0.9% year-over-year to $1.82 billion, the company incurred a net loss of $46.7 million, or ($0.33) per diluted share, a stark contrast to the $171.2 million net income reported in the same period last year. This downturn was heavily influenced by a $236 million pre-tax charge related to an agreement in principle to resolve the California Lawsuit, impacting profitability substantially. Despite these headwinds, the company continued its strategic growth through acquisitions, notably the completion of Athena Diagnostics and progress on the Celera Corporation acquisition, signaling a focus on expanding its service offerings in advanced diagnostics. Management also highlighted efforts to manage costs, including workforce reductions, and the ongoing share repurchase program.

Financial Highlights

55 data points
Beta

Revenue

$1.79B

39.3% Gross Margin

Net Income

-$53.86M

-3.0% Net Margin

EPS (Diluted)

$-0.33

Total Assets

$9.22B

Cash & Equivalents

$994.24M

Free Cash Flow

$121.59M

Financial Statements
Beta
Revenue$1.79B
Cost of Revenue$1.10B
Gross Profit$704.56M
SG&A Expenses$447.86M
Operating Expenses$1.79B
Operating Income$30.96M
Interest Expense$38.28M
Net Income-$53.86M
EPS (Basic)$-0.33
EPS (Diluted)$-0.33
Shares Outstanding (Basic)161.49M
Shares Outstanding (Diluted)161.49M

Key Highlights

  • 1Net revenues increased slightly by 0.9% to $1.82 billion compared to the prior year's first quarter.
  • 2The company reported a net loss of $46.7 million ($0.33 per diluted share) for the quarter, a significant decline from a net income of $171.2 million in Q1 2010.
  • 3A substantial pre-tax charge of $236 million was recorded due to an agreement in principle to settle the California Lawsuit.
  • 4Operating income decreased significantly from $298.6 million in Q1 2010 to $31.0 million in Q1 2011, largely due to the aforementioned legal settlement charge.
  • 5Quest Diagnostics completed the acquisition of Athena Diagnostics for approximately $740 million and made progress on acquiring Celera Corporation, demonstrating continued strategic investment in growth.
  • 6The company repurchased approximately $835 million of its common stock during the quarter as part of its ongoing share repurchase program.
  • 7Cash and cash equivalents increased significantly to $994.2 million at the end of the quarter, partly due to proceeds from debt offerings used to fund acquisitions.

Frequently Asked Questions

The primary driver of the net loss was a $236 million pre-tax charge related to an agreement in principle to resolve the California Lawsuit, which alleged overcharging Medi-Cal. This charge, combined with other operating expenses and a slight decrease in revenue per requisition, led to a net loss of $46.7 million compared to a net profit in the prior year.

The company completed the acquisition of Athena Diagnostics for approximately $740 million shortly after the quarter ended, funded by proceeds from a recent senior notes offering. Additionally, Quest Diagnostics made progress towards acquiring Celera Corporation, valued at approximately $344 million. These acquisitions signal a strategic focus on expanding advanced diagnostic capabilities, although transaction costs were incurred during the quarter.

While net revenues showed modest growth, the significant legal charge heavily impacted profitability for Q1 2011. Management noted that severe weather also adversely affected revenues and operating income. The successful resolution and funding of the California Lawsuit settlement are key factors. Continued focus on cost management and the integration of recent acquisitions will be crucial for future profitability.

Quest Diagnostics increased its cash and cash equivalents significantly to $994.2 million, partly by issuing $1.25 billion in senior notes. A portion of these proceeds, along with cash on hand, was used to fund the Athena acquisition and repay existing debt. The company has substantial borrowing capacity available under its credit facilities, which it believes is sufficient to meet its obligations, including future debt service, capital expenditures, dividends, and share repurchases.