10-QPeriod: Q2 FY2013

QUEST DIAGNOSTICS INC Quarterly Report for Q2 Ended Jun 30, 2013

Filed July 25, 2013For Securities:DGX

Summary

Quest Diagnostics Inc. (DGX) reported its second-quarter 2013 financial results, indicating a decline in both net revenues and net income compared to the same period in the prior year. Net revenues for the quarter were $1.82 billion, down 3.3% year-over-year, largely attributed to lower healthcare utilization and reimbursement reductions, particularly affecting the Diagnostic Information Services (DIS) segment. While testing volumes saw a slight increase due to recent acquisitions, a decline in revenue per requisition due to Medicare fee schedule reductions and other factors, including a shift towards lower-priced tests, pressured top-line growth. Despite revenue challenges, the company continued to execute its "Invigorate" program aimed at cost reduction, which is showing savings and mitigating some of the impact on profitability. However, restructuring and integration costs associated with this program and recent acquisitions also impacted earnings. Diluted earnings per share from continuing operations decreased to $0.99 from $1.09 in the prior year's second quarter. The company also highlighted its ongoing share repurchase program and dividend payments, signaling a focus on returning capital to shareholders.

Financial Highlights

53 data points
Beta

Revenue

$1.81B

39.7% Gross Margin

Net Income

$165.00M

9.1% Net Margin

EPS (Diluted)

$1.07

Total Assets

$9.04B

Cash & Equivalents

$148.00M

Free Cash Flow

$152.00M

Financial Statements
Beta
Revenue$1.81B
Cost of Revenue$1.09B
Gross Profit$721.00M
SG&A Expenses$418.00M
Operating Expenses$1.53B
Operating Income$289.00M
Net Income$165.00M
EPS (Basic)$1.07
EPS (Diluted)$1.07
Shares Outstanding (Basic)153.00M
Shares Outstanding (Diluted)154.00M

Key Highlights

  • 1Net revenues decreased by 3.3% to $1.82 billion for the three months ended June 30, 2013, compared to $1.88 billion in the prior year.
  • 2Income from continuing operations for the quarter declined by 12.8% to $152.7 million, down from $175.2 million in the second quarter of 2012.
  • 3Diluted earnings per share from continuing operations were $0.99, a decrease from $1.09 in the prior year's second quarter.
  • 4The "Invigorate" cost reduction program is progressing, with savings realized and expected to mitigate revenue pressures.
  • 5The company made strategic acquisitions in UMass Memorial Medical Center, Advanced Toxicology Network (ATN), and Dignity Health's lab operations during the first half of 2013.
  • 6Shareholder returns were supported by $405 million in accelerated share repurchases and $30 million in dividend payments during the quarter.
  • 7The company completed the sale of its HemoCue diagnostics products business in April 2013, recording a gain on disposal.

Frequently Asked Questions

The primary drivers of the revenue decline were lower healthcare utilization, which impacted many healthcare providers, and reductions in reimbursement rates, particularly from Medicare fee schedules and sequestration. Additionally, a shift towards lower-priced tests, such as drugs-of-abuse testing, and a decrease in higher-priced anatomic pathology testing also negatively impacted revenue per requisition.

The 'Invigorate' program, designed to reduce costs, is progressing as planned. The company has realized savings through workforce reductions and operational efficiencies, which have helped mitigate some of the negative impact of revenue declines on profitability. The program is on track to deliver significant cost savings by the end of 2014.

Quest Diagnostics has been actively pursuing strategic acquisitions, notably the clinical outreach and anatomic pathology businesses of UMass Memorial Medical Center, the toxicology and clinical laboratory business of Advanced Toxicology Network (ATN), and lab operations from Dignity Health. Concurrently, the company divested non-core assets, such as the HemoCue diagnostics products business, to streamline its portfolio.

Quest Diagnostics demonstrated its commitment to shareholder returns through significant share repurchase activities, including an accelerated share repurchase agreement totaling $450 million in the second quarter of 2013. The company also continued its dividend payments, declaring a quarterly cash dividend of $0.30 per common share.