10-QPeriod: Q1 FY2013

QUEST DIAGNOSTICS INC Quarterly Report for Q1 Ended Mar 31, 2013

Filed April 24, 2013For Securities:DGX

Summary

Quest Diagnostics Inc. reported a decline in net revenues for the first quarter of 2013 compared to the same period in 2012, primarily driven by a decrease in its Diagnostic Information Services (DIS) segment. This revenue shortfall was partially offset by cost-saving initiatives under the "Invigorate" program, which also incurred significant restructuring and integration charges. The company also experienced a notable decrease in income from continuing operations and diluted earnings per share. Despite the revenue challenges, the company continued its capital allocation strategies, including share repurchases and dividend payments. The divestiture of the HemoCue business was completed in early April 2013, and an acquisition of Dignity Health's lab outreach services was agreed upon. Investors should monitor the impact of ongoing restructuring costs and reimbursement pressures on future profitability.

Financial Highlights

53 data points
Beta

Revenue

$1.79B

38.9% Gross Margin

Net Income

$136.00M

7.6% Net Margin

EPS (Diluted)

$0.85

Total Assets

$9.31B

Cash & Equivalents

$134.00M

Free Cash Flow

-$2.00M

Financial Statements
Beta
Revenue$1.79B
Cost of Revenue$1.09B
Gross Profit$695.00M
SG&A Expenses$448.00M
Operating Expenses$1.56B
Operating Income$227.00M
Net Income$136.00M
EPS (Basic)$0.86
EPS (Diluted)$0.85
Shares Outstanding (Basic)158.00M
Shares Outstanding (Diluted)159.00M

Key Highlights

  • 1Net revenues decreased by 6.4% to $1.79 billion for the three months ended March 31, 2013, compared to $1.91 billion in the prior year.
  • 2Income from continuing operations declined significantly by 26.0% to $115.5 million, from $156.1 million in the prior year.
  • 3Diluted earnings per share from continuing operations decreased to $0.72 from $0.97 in the prior year.
  • 4The company incurred $44.5 million in pre-tax restructuring and integration charges in the first quarter of 2013.
  • 5Cost of services decreased by $17.4 million due to cost-saving initiatives and lower volumes, but as a percentage of net revenue, it increased.
  • 6The company declared a quarterly cash dividend of $0.30 per common share.
  • 7The sale of the HemoCue business was completed in April 2013, and an agreement to acquire Dignity Health's lab outreach services was announced.

Frequently Asked Questions

The primary driver for the decrease in net revenues was a 6.7% decline in the Diagnostic Information Services (DIS) business, which constitutes over 90% of total revenues. This was due to a 3.4% decrease in DIS volume (requisitions) and a 3.4% decrease in revenue per requisition, largely attributed to Medicare fee schedule reductions and other commercial fee changes.

Quest Diagnostics is implementing a multi-year program called "Invigorate" aimed at achieving $600 million in annual run-rate cost savings by the end of 2014. This program involves initiatives across laboratory operations, supply chain, SG&A, and client support/billing. The company also undertook a major management restructuring in late 2012.

In the first quarter of 2013, Quest Diagnostics recorded $44.5 million in pre-tax charges ($0.17 per diluted share) related to restructuring and integration costs, primarily associated with workforce reductions and professional fees. These costs negatively impacted operating income and net income.

In early 2013, the company acquired the clinical outreach and anatomic pathology businesses of UMass Memorial Medical Center. In April 2013, Quest Diagnostics completed the sale of its HemoCue business and entered into an agreement to acquire certain lab-related clinical outreach service operations from Dignity Health.