10-QPeriod: Q2 FY2012

QUEST DIAGNOSTICS INC Quarterly Report for Q2 Ended Jun 30, 2012

Filed July 26, 2012For Securities:DGX

Summary

Quest Diagnostics Inc. reported solid financial results for the six months ended June 30, 2012. Net revenues increased by 3.2% year-over-year to $3.84 billion, driven by a 3.5% increase in clinical testing revenue, boosted by acquisitions like Athena and Celera. The company demonstrated significant operational improvements, with operating income more than doubling to $634.3 million, and operating income as a percentage of net revenues improving from 9.3% to 16.5%. This was largely attributed to the absence of a significant one-time charge related to a California lawsuit in the prior year, coupled with ongoing cost-saving initiatives. Profitability saw a substantial jump, with net income attributable to Quest Diagnostics stockholders reaching $336.8 million for the six-month period, a significant increase from $109.3 million in the prior year. Diluted earnings per share also saw a dramatic rise from $0.67 to $2.10. The company continued to return capital to shareholders through dividends and share repurchases, with $100 million spent on repurchases in the first half of 2012 and $965 million remaining available under its authorization. The company maintains a strong liquidity position with $173.7 million in cash and cash equivalents at the end of the period.

Financial Highlights

55 data points
Beta

Revenue

$1.88B

41.3% Gross Margin

Net Income

$178.00M

9.5% Net Margin

EPS (Diluted)

$1.11

Total Assets

$9.39B

Cash & Equivalents

$173.74M

Free Cash Flow

$203.46M

Financial Statements
Beta
Revenue$1.88B
Cost of Revenue$1.10B
Gross Profit$776.00M
SG&A Expenses$424.08M
Operating Expenses$1.54B
Operating Income$333.35M
Interest Expense$42.64M
Net Income$178.00M
EPS (Basic)$1.12
EPS (Diluted)$1.11
Shares Outstanding (Basic)158.48M
Shares Outstanding (Diluted)159.78M

Key Highlights

  • 1Net revenues increased 3.2% year-over-year to $3.84 billion for the first six months of 2012.
  • 2Operating income more than doubled to $634.3 million, with operating margin improving significantly.
  • 3Net income attributable to stockholders surged to $336.8 million, a substantial increase from $109.3 million in the prior year period.
  • 4Diluted earnings per share rose significantly to $2.10 from $0.67 year-over-year.
  • 5The company repurchased $100 million of common stock in the first half of 2012 and has $965 million remaining under its authorization.
  • 6Cash flow from operating activities increased substantially to $412.1 million for the six months ended June 30, 2012.
  • 7Acquisitions, including Athena, Celera, and S.E.D., contributed to revenue growth.

Frequently Asked Questions

The substantial increase in net income and earnings per share was primarily driven by two factors: the absence of a significant $236 million pre-tax charge related to the Medi-Cal lawsuit in the prior year's first quarter, and the company's ongoing cost-saving initiatives that improved operational efficiency. These factors, combined with revenue growth from acquisitions, significantly boosted profitability.

Net revenues for the six months ended June 30, 2012, increased by 3.2% to $3.84 billion compared to the same period in 2011. The clinical testing business, which constitutes over 90% of revenue, saw a 3.5% increase, supported by acquisitions such as Athena, Celera, and S.E.D.

Quest Diagnostics is executing a multi-year program called 'Invigorate' aimed at delivering $500 million in run-rate cost savings by the end of 2014. This program focuses on standardizing processes, increasing automation, centralizing activities, and optimizing laboratory operations and supply chain management. The company is also undertaking initiatives such as voluntary retirement programs to achieve these savings.

The company is actively returning capital to shareholders through dividend payments and share repurchases. In the first half of 2012, $100 million was spent on share repurchases, and there was $965 million remaining under the authorization. The company also consistently pays quarterly dividends, with the rate increased in late 2011, and expects future dividend payments to be funded by operating cash flows.