10-QPeriod: Q3 FY2017

QUEST DIAGNOSTICS INC Quarterly Report for Q3 Ended Sep 30, 2017

Filed October 19, 2017For Securities:DGX

Summary

Quest Diagnostics reported mixed results for the third quarter and first nine months of 2017. While total net revenues saw a modest increase, driven by their Diagnostic Information Services (DIS) segment, operating income and net income attributable to stockholders declined compared to the prior year. This decline was influenced by various factors including increased operating costs, integration costs from recent acquisitions, and estimated negative impacts from hurricanes. Despite these challenges, the company demonstrated strong operating cash flow generation, showing an increase year-over-year. Quest Diagnostics also continued its strategic acquisition activity, notably acquiring Med Fusion and PeaceHealth Laboratories' outreach business, alongside announcing plans to acquire Shiel Medical Laboratory and Cleveland HeartLab. The company is also progressing with its multi-year "Invigorate" program aimed at cost reduction, with strong progress towards its savings goals.

Financial Highlights

56 data points
Beta

Revenue

$1.86B

35.9% Gross Margin

Net Income

$161.00M

8.7% Net Margin

EPS (Diluted)

$1.15

Total Assets

$10.44B

Cash & Equivalents

$350.00M

Free Cash Flow

$299.00M

Financial Statements
Beta
Revenue$1.86B
Cost of Revenue$1.19B
Gross Profit$666.00M
SG&A Expenses$348.00M
Operating Expenses$1.56B
Operating Income$298.00M
Interest Expense$39.00M
Net Income$161.00M
EPS (Basic)$1.18
EPS (Diluted)$1.15
Shares Outstanding (Basic)137.00M
Shares Outstanding (Diluted)140.00M

Key Highlights

  • 1Total net revenues increased by 2.4% to $1.9 billion for the third quarter of 2017, with the DIS segment growing by 2.8%.
  • 2Operating income decreased by 7.4% to $298 million for the third quarter, and by 10.5% to $896 million for the first nine months.
  • 3Net income attributable to Quest Diagnostics stockholders decreased by 16.0% to $161 million ($1.15 per diluted share) for the third quarter.
  • 4Net cash provided by operating activities increased by $87 million to $852 million for the first nine months of 2017.
  • 5The company completed three acquisitions in the third quarter: PeaceHealth Laboratories, Med Fusion, and Hartford HealthCare's outreach businesses, totaling approximately $281 million.
  • 6Quest Diagnostics continues to execute its "Invigorate" program, aiming for $1.3 billion in run-rate savings by the end of 2017.
  • 7The company is progressing with its share repurchase program, with $1.0 billion remaining available as of September 30, 2017.

Frequently Asked Questions

For the third quarter of 2017, Quest Diagnostics reported total net revenues of $1.9 billion, a 2.4% increase compared to the prior year period. The Diagnostic Information Services (DIS) segment, which represents over 90% of revenues, saw a 2.8% increase, driven by volume growth and higher revenue per requisition. However, the Diagnostic Solutions (DS) businesses experienced a 5.1% decline.

Profitability saw a decline. Operating income decreased by 7.4% to $298 million in the third quarter of 2017. Net income attributable to Quest Diagnostics stockholders also fell by 16.0% to $161 million, resulting in diluted earnings per share of $1.15, down from $1.34 in the prior year period. This decrease was influenced by higher operating costs and integration expenses from acquisitions.

Quest Diagnostics actively engaged in acquisitions during the nine months ended September 30, 2017. They completed the acquisitions of PeaceHealth Laboratories ($101 million), Med Fusion ($150 million), and Hartford HealthCare's outreach laboratory services ($30 million). These strategic moves are aimed at expanding their service offerings, particularly in areas like precision diagnostics for oncology and advanced diagnostics.

The company reported strong cash flow from operations, which increased to $852 million for the first nine months of 2017. Quest Diagnostics believes that its cash on hand, operating cash flow, and available borrowing capacity under its credit facilities are sufficient to fund its working capital requirements, capital expenditures, debt service, dividends, share repurchases, and growth opportunities for the foreseeable future.