10-QPeriod: Q1 FY2015

QUEST DIAGNOSTICS INC Quarterly Report for Q1 Ended Mar 31, 2015

Filed April 30, 2015For Securities:DGX

Summary

Quest Diagnostics reported first-quarter 2015 results with net revenues of $1.84 billion, a 5.3% increase year-over-year, driven by growth in both its Diagnostic Information Services (DIS) and Diagnostic Solutions (DS) segments. Despite a challenging winter, the company saw a 5.6% increase in DIS volume. However, net income attributable to Quest Diagnostics stockholders decreased by 41.2% to $61 million, or $0.42 per diluted share, largely due to a significant pre-tax loss of $84 million related to the early retirement of debt and refinancing charges. The company continued to execute its five-point strategy, including a 15% increase in its quarterly dividend to $0.38 per share and substantial share repurchases, alongside progress on its multi-year Invigorate cost-saving program.

Financial Highlights

57 data points
Beta

Revenue

$1.84B

36.8% Gross Margin

Net Income

$61.00M

3.3% Net Margin

EPS (Diluted)

$0.42

Total Assets

$10.61B

Cash & Equivalents

$974.00M

Free Cash Flow

-$4.00M

Financial Statements
Beta
Revenue$1.84B
Cost of Revenue$1.16B
Gross Profit$676.00M
SG&A Expenses$419.00M
Operating Expenses$1.61B
Operating Income$228.00M
Interest Expense$45.00M
Net Income$61.00M
EPS (Basic)$0.42
EPS (Diluted)$0.42
Shares Outstanding (Basic)144.00M
Shares Outstanding (Diluted)146.00M

Key Highlights

  • 1Total net revenues increased by 5.3% to $1.84 billion, driven by a 4.9% rise in DIS revenues and an 11.2% increase in DS revenues.
  • 2Net income attributable to Quest Diagnostics stockholders declined significantly by 41.2% to $61 million, resulting in diluted EPS of $0.42.
  • 3The decline in net income was heavily impacted by an $84 million pre-tax loss related to the early retirement of debt and associated refinancing costs.
  • 4The company announced a 15% increase in its quarterly dividend to $0.38 per common share.
  • 5Quest Diagnostics repurchased $110 million of its common stock during the quarter, demonstrating a commitment to returning capital to shareholders.
  • 6A joint venture agreement was entered into with Quintiles for the clinical trials central laboratory services business, expected to close in Q3 2015.
  • 7The company is continuing its Invigorate cost-saving program, with an updated target of $1.3 billion in total run-rate savings by the end of 2017.

Frequently Asked Questions

The primary reason for the substantial decrease in net income was a pre-tax loss of $84 million incurred during the quarter related to the early retirement of debt and associated refinancing charges. This significantly impacted the company's profitability for the period.

Quest Diagnostics completed a $1.2 billion senior notes offering in March 2015. The proceeds were used to fund a cash tender offer for existing senior notes and to redeem other notes in April 2015. This strategy aimed to retire over $1.2 billion in outstanding senior notes, reduce future interest expense, and improve the company's debt maturity profile.

Quest Diagnostics entered into a definitive agreement to form a global clinical trials central laboratory services joint venture with Quintiles. The company will contribute its clinical trials testing business assets and will receive a 40% ownership interest. The transaction is expected to close no later than the third quarter of 2015.

The company is continuing its multi-year Invigorate program, which focuses on driving savings and improving performance across various operational areas. In January 2015, they adopted a new course of action to further reduce costs, targeting an additional $600 million in run-rate savings by the end of 2017, bringing the total target savings to $1.3 billion compared to 2011.