10-QPeriod: Q1 FY2018

QUEST DIAGNOSTICS INC Quarterly Report for Q1 Ended Mar 31, 2018

Filed April 20, 2018For Securities:DGX

Summary

Quest Diagnostics Inc. (DGX) reported solid revenue growth in the first quarter of 2018, with total net revenues increasing by 3.7% year-over-year to $1.884 billion. This growth was primarily driven by the Diagnostic Information Services (DIS) segment, which saw a 4.1% increase in revenue, bolstered by acquisitions and ongoing expansion of hospital relationships. Despite revenue growth, operating income saw a slight decrease of 2.5% due to higher restructuring costs and weather impacts. Net income attributable to Quest Diagnostics increased by 8.2% to $177 million, leading to diluted earnings per share (EPS) of $1.27, up from $1.16 in the prior year. This EPS improvement was significantly aided by a lower effective income tax rate resulting from the Tax Cuts and Jobs Act (TCJA). The company also completed a notable acquisition of Mobile Medical Examination Services, Inc. (MedXM) for $142 million, integrating it into the DIS segment to expand its health risk assessment services.

Financial Highlights

56 data points
Beta

Revenue

$1.88B

34.9% Gross Margin

Net Income

$177.00M

9.4% Net Margin

EPS (Diluted)

$1.27

Total Assets

$10.70B

Cash & Equivalents

$124.00M

Free Cash Flow

$107.00M

Financial Statements
Beta
Revenue$1.88B
Cost of Revenue$1.23B
Gross Profit$658.00M
SG&A Expenses$363.00M
Operating Expenses$1.61B
Operating Income$272.00M
Interest Expense$41.00M
Net Income$177.00M
EPS (Basic)$1.30
EPS (Diluted)$1.27
Shares Outstanding (Basic)136.00M
Shares Outstanding (Diluted)139.00M

Key Highlights

  • 1Total net revenues increased by 3.7% to $1.884 billion, driven by the core Diagnostic Information Services (DIS) segment.
  • 2Net income attributable to Quest Diagnostics grew by 8.2% to $177 million, with diluted EPS rising to $1.27 from $1.16.
  • 3The effective income tax rate decreased significantly to 22.5% from 31.8% due to the Tax Cuts and Jobs Act (TCJA).
  • 4Acquisition of Mobile Medical Examination Services, Inc. (MedXM) for $142 million completed in February 2018 to enhance health risk assessment services.
  • 5Restructuring charges, primarily from workforce reductions and systems integration, increased compared to the prior year, impacting operating income.
  • 6Operating income saw a slight decrease of 2.5% to $272 million, mainly due to higher restructuring costs and negative weather impacts.
  • 7The company continues to execute its Invigorate program aimed at cost structure reduction and performance improvement.

Frequently Asked Questions

The primary driver of Quest Diagnostics' revenue growth in the first quarter of 2018 was the Diagnostic Information Services (DIS) segment, which experienced a 4.1% increase in revenue. This growth was attributed to recent acquisitions and the expansion of relationships with hospital health systems. DIS revenue constitutes over 95% of the company's total net revenues.

The TCJA significantly reduced Quest Diagnostics' effective income tax rate to 22.5% in the first quarter of 2018, down from 31.8% in the prior year. This lower tax rate provided a substantial benefit to net income and diluted earnings per share.

The acquisition of Mobile Medical Examination Services, Inc. (MedXM) for $142 million in February 2018 is significant as it expands Quest Diagnostics' capabilities in home-based health risk assessments and related services. This acquisition was integrated into the DIS segment and is expected to contribute to the company's growth strategy.

The decrease in operating income, despite revenue growth, was primarily due to higher restructuring costs associated with workforce reductions and systems integration efforts under the Invigorate program. Additionally, adverse weather conditions in the quarter are estimated to have negatively impacted revenue growth and contributed to the decline in operating income.