10-QPeriod: Q1 FY2017

QUEST DIAGNOSTICS INC Quarterly Report for Q1 Ended Mar 31, 2017

Filed April 21, 2017For Securities:DGX

Summary

Quest Diagnostics Inc. reported solid first-quarter 2017 results, with total net revenues increasing by 1.9% year-over-year to $1.9 billion. This growth was primarily driven by a 3.2% increase in the core Diagnostic Information Services (DIS) business, which saw a 3.5% rise in volume (requisitions). Despite a slight decrease in revenue per requisition, the company demonstrated strong operational leverage, with operating income growing by 8.7% and net income attributable to Quest Diagnostics stockholders soaring by 58.8% to $164 million, resulting in diluted EPS of $1.16, up significantly from $0.71 in the prior year. The company also generated robust operating cash flow, increasing by 28.1% to $196 million, indicating efficient working capital management and operational improvements. The company continued its strategic execution by progressing on its multi-year Invigorate program aimed at cost reduction, targeting $1.3 billion in run-rate savings by year-end 2017. This program, along with other efficiency initiatives, contributed to improved profitability. Quest Diagnostics also actively returned capital to shareholders through dividends and a significant share repurchase program, demonstrating confidence in its financial position and future prospects. The company is also strategically expanding through acquisitions, with an agreement to acquire the outreach laboratory services operations of PeaceHealth Laboratories.

Financial Highlights

56 data points
Beta

Revenue

$1.82B

35.9% Gross Margin

Net Income

$164.00M

9.0% Net Margin

EPS (Diluted)

$1.16

Total Assets

$10.11B

Cash & Equivalents

$367.00M

Free Cash Flow

$154.00M

Financial Statements
Beta
Revenue$1.82B
Cost of Revenue$1.17B
Gross Profit$652.00M
SG&A Expenses$355.00M
Operating Expenses$1.54B
Operating Income$279.00M
Interest Expense$37.00M
Net Income$164.00M
EPS (Basic)$1.19
EPS (Diluted)$1.16
Shares Outstanding (Basic)137.00M
Shares Outstanding (Diluted)141.00M

Key Highlights

  • 1Total net revenues grew 1.9% to $1.9 billion, with the core DIS business revenue up 3.2% driven by a 3.5% increase in volume.
  • 2Net income attributable to Quest Diagnostics stockholders significantly increased by 58.8% to $164 million, leading to diluted EPS of $1.16, a substantial rise from $0.71 in the prior year.
  • 3Operating income increased by 8.7% to $279 million, reflecting improved operational efficiency and cost management.
  • 4Net cash provided by operating activities rose by 28.1% to $196 million, highlighting strong cash generation and working capital management.
  • 5The company continues to execute its Invigorate cost reduction program, on track to achieve $1.3 billion in run-rate savings by year-end 2017.
  • 6Quest Diagnostics repurchased $150 million of its common stock in the quarter and declared a quarterly dividend of $0.45 per share, showing commitment to returning capital to shareholders.
  • 7The company entered into an agreement to acquire the outreach laboratory services operations of PeaceHealth Laboratories, indicating strategic expansion efforts.

Frequently Asked Questions

Quest Diagnostics reported a 1.9% increase in total net revenues for the first quarter of 2017, reaching $1.9 billion, compared to $1.863 billion in the prior year period. The core Diagnostic Information Services (DIS) business saw a 3.2% revenue increase, driven by a 3.5% rise in volume (requisitions), while the Diagnostic Solutions (DS) business experienced a 19.0% decline primarily due to the prior year sale of the Focus Diagnostics products business.

The Invigorate program, aimed at cost reduction, is on track to achieve $1.3 billion in run-rate savings by the end of 2017. In the first quarter of 2017, the company incurred $16 million in charges related to systems conversion and integration costs associated with further restructuring and integrating the business. These efforts contributed to improved operational efficiency and profitability, as evidenced by the growth in operating income and net income.

The company generated strong operating cash flow of $196 million in Q1 2017. Quest Diagnostics actively returned capital through a quarterly cash dividend of $0.45 per common share and significant share repurchases, spending $150 million on stock buybacks during the quarter. As of March 31, 2017, $1.2 billion remained available under its share repurchase authorization.

Quest Diagnostics is involved in various legal proceedings, including a qui tam civil lawsuit related to alleged violations of the False Claims Act. While an agreement in principle has been reached, further negotiation and governmental sign-offs are required. The company also notes that reserves for general and professional liability claims totaled $122 million as of March 31, 2017. Management believes current reserves and insurance coverage are sufficient and does not anticipate a material adverse effect on its financial condition, but acknowledges the potential for material impact on operating results or cash flows in the period of determination.