10-QPeriod: Q2 FY2016

QUEST DIAGNOSTICS INC Quarterly Report for Q2 Ended Jun 30, 2016

Filed July 25, 2016For Securities:DGX

Summary

Quest Diagnostics Inc. reported strong financial results for the six months ended June 30, 2016, with net income attributable to Quest Diagnostics' stockholders increasing by 66.4% to $298 million, or $2.08 per diluted share, compared to the prior year period. This growth was significantly boosted by a substantial pre-tax gain of $118 million from the sale of its Focus Diagnostics products business in May 2016. Excluding this one-time gain, the company demonstrated solid operational performance, with its core Diagnostic Information Services (DIS) segment revenues growing 2.9% year-over-year, driven by a 2.3% increase in volume. The company also continued to execute its cost-reduction initiatives through the Invigorate program, which is on track to achieve its savings goals. Financially, Quest Diagnostics strengthened its balance sheet by repaying debt and actively repurchasing shares. The company ended the period with a healthy cash position and available credit facilities, positioning it well for future operations and growth initiatives.

Financial Highlights

57 data points
Beta

Revenue

$1.91B

39.4% Gross Margin

Net Income

$195.00M

10.2% Net Margin

EPS (Diluted)

$1.37

Total Assets

$10.11B

Cash & Equivalents

$283.00M

Free Cash Flow

$254.00M

Financial Statements
Beta
Revenue$1.91B
Cost of Revenue$1.16B
Gross Profit$751.00M
SG&A Expenses$430.00M
Operating Expenses$1.48B
Operating Income$422.00M
Interest Expense$35.00M
Net Income$195.00M
EPS (Basic)$1.38
EPS (Diluted)$1.37
Shares Outstanding (Basic)140.00M
Shares Outstanding (Diluted)142.00M

Key Highlights

  • 1Net income attributable to Quest Diagnostics stockholders rose 66.4% to $298 million for the six months ended June 30, 2016, up from $179 million in the prior year period.
  • 2Diluted earnings per share increased by 69.1% to $2.08 for the first six months of 2016, compared to $1.23 in the same period last year.
  • 3A significant pre-tax gain of $118 million was recognized from the sale of the Focus Diagnostics products business on May 13, 2016.
  • 4The core Diagnostic Information Services (DIS) segment saw a 2.9% revenue increase for the first six months of 2016, driven by a 2.3% rise in volume.
  • 5The company's cost-reduction 'Invigorate' program is progressing well, with management confident in achieving its savings targets.
  • 6Quest Diagnostics actively managed its capital structure, including significant share repurchases totaling $352 million in the first six months of 2016.
  • 7Cash and cash equivalents increased substantially to $283 million as of June 30, 2016, from $133 million at the end of 2015.

Frequently Asked Questions

The primary driver of the substantial increase in net income was the pre-tax gain of $118 million recognized from the sale of the company's Focus Diagnostics products business on May 13, 2016. This one-time gain significantly boosted the reported earnings for the period.

The Diagnostic Information Services (DIS) business, which represents over 90% of net revenues, showed positive performance with revenues increasing by 2.9% for the first six months of 2016, supported by a 2.3% increase in volume. This indicates steady operational growth in its primary service area.

The 'Invigorate' program, aimed at reducing the company's cost structure, is on track to meet its savings goals. The company has incurred charges related to this program for restructuring and integration, and management expects significant run-rate savings by the end of 2017.

Quest Diagnostics ended the period with a stronger cash position, with cash and cash equivalents rising to $283 million. The company also actively repurchased shares totaling $352 million and engaged in debt management activities, including the issuance of new senior notes and retirement of existing debt, which is expected to reduce future interest expenses.