Leading diagnostic testing company
) reported earnings per share (EPS) of $1.01 in the third quarter
of 2012, down considerably from $1.08 in the year-ago period.
However, after taking into account certain charges related to
restructuring and integration (17 cents), adjusted EPS from
continuing operations came in at $1.18, flat year over year and
remained in line with the Zacks Consensus Estimate. The year-ago
quarter recorded a cost of 10 cents per share related to
restructuring and integration.
Revenues for the quarter were down 2.9% year over year to $1.85
billion nominally missing the Zacks Consensus Estimate of $1.88
billion. Clinical testing revenues during the quarter decreased
2.1% and volume (measured by the number of requisitions) inched
down 1.1%. Revenue per requisition was down 1% year over year.
We believe that the overall soft industry trends leading to low
volume growth was a dampener for the company. We expect this
challenging scenario to adversely affect Quest Diagnostics' peer
Laboratory Corporation of America Holdings
) as well, which is scheduled to release its third quarter 2012
results on October 18, 2012.
Among the operating costs, cost of services during the reported
quarter stood at $1.09 billion, down 2.4% year over year. Selling,
general and administrative (SG&A) expenses dropped 3.1% to
$432.6 million. Adjusted operating margin in the quarter contracted
20 basis points (bps) to 17.8% on adjusted operating income of
Quest Diagnostics exited the quarter with $191.8 million in cash
and cash equivalents, up from $164.9 million at the end of fiscal
2011. Cash provided by operating activities for the quarter was
$395 million compared with $338 million in year-ago
quarter. The company is focused on enhancing shareholders'
value and improving returns on capital. During the reported
quarter, Quest repurchased shares worth $50 million and reduced
outstanding debt by $292 million.
A disappointing third quarter performance forced Quest
Diagnostic to lower its fiscal 2012 guidance. The revenue growth
outlook was reduced to 0.5% (earlier outlook being 1%-2%). The
company also lowered the higher end of its EPS guidance to the band
of $4.45- $4.55 ($4.45- $4.60).
However, the company reaffirmed the operating margin guidance at
18% and $1.2 billion as cash from operations. The company now
expects $180 million of capital expenditure compared with previous
guidance of $200 million.
We remain cautious about the company as it is continuously
witnessing challenges with testing volume. Concerns also linger
about the soft industry trends due to a decline in physician office
visits, flat pricing, low organic revenue. Moreover, a decline in
the company's fiscal 2012 guidance reflected the fact that the
industry trend will not improve in near future, which adds to our
Although, we hold a favorable view regarding the company's
recently announced (on October 11, 2012) massive organizational
restructuring in order to increase operational efficiency and
restore growth, the near-term visibility remains a matter of
concern. We currently have a Neutral recommendation on Quest
QUEST DIAGNOSTC (DGX): Free Stock Analysis
LABORATORY CP (LH): Free Stock Analysis Report
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