Leading diagnostic testing company,
) reported earnings per share ("EPS") from continuing operations
of 87 cents in the fourth quarter of 2012, down considerably from
$1.16 in the year-ago period. However, after taking into account
certain charges related to restructuring and integration (14
cents), adjusted EPS from continuing operations came in at $1.01,
down 15.8% year over year. This does not exclude the impact of
Hurricane Sandy that reduced the EPS by 6 cents.
The Zacks Consensus Estimate for the quarter's EPS was $1.06.
The year-ago quarter had incurred a cost of 2 cents per share
each, related to restructuring and integration as well as CEO
succession costs. For the full year, adjusted EPS from continuing
operations was $4.36, down 2 cents from the year-ago adjusted
figure and remained below the Zacks Consensus Estimate of
Revenues from continuing operations for the fourth quarter
were down 4.0% year over year to $1.77 billion, missing the Zacks
Consensus Estimate of $1.82 billion. As announced earlier, the
impact of Hurricane Sandy reduced the quarter's revenues by an
expected $21 million. Sales for fiscal 2012 remained at $7.4
billion, flat year over year as well as in line with the Zacks
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 fourth-quarter and
fiscal 2012 results on Feb 8, 2013.
Notably, earlier in Dec 2012, Quest Diagnostics sold its
OralDNA Labs salivary-diagnostics business to Access Genetics and
recently announced the plan to divest its HemoCue diagnostic
products business. Accordingly, revenues from these two
businesses are reported as discontinued operations in its
fourth-quarter and fiscal 2012 results. The company believes that
these divestitures will allow it to refocus its resources toward
core diagnostic information services.
Among operating costs, cost of services during the reported
quarter stood at $1.07 billion, flat year over year. Selling,
general and administrative (SG&A) expenses dropped 4.5% to
$421 million. Other operating income was $3.3 million, compared
to expense of $0.2 million in the year-ago quarter. Adjusted
operating margin in the quarter contracted 232 basis points (bps)
to 15.98% on adjusted operating income of $283.5 million.
Quest Diagnostics exited the quarter with $295.6 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 $380 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 Diagnostics repurchased shares worth $50 million and
reduced outstanding debt by $147 million.
Quest Diagnostics provided its fiscal 2013 outlook. The
company expects revenue growth to remain in the band of 0%-1%.
The current Zacks Consensus Estimate of $7.5 billion
(representing annual growth of 1.4%) remains outside the guided
range. EPS is expected to remain in the range of $4.35−$4.55. The
Zacks Consensus Estimate of $4.49 falls within the range.
Moreover, the company expects $250 million of capital expenditure
and $1.0 billion as cash provided by operations.
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 and low organic revenue. Moreover, a
disappointing fiscal 2013 guidance reflected the fact that the
industry trend will not improve in the near future, which adds to
However, we are optimistic regarding the company's strategy to
refocus on Diagnostic Information Services along with the
organizational structure developed by the company's new CEO,
Steve Rusckowski. We also expect this to run successfully adding
synergies to its ongoing $500 million restructuring initiative,
associated with its Invigorate program. The stock retains a Zacks
Rank #3 (Hold).
Other Stocks to Consider
While we prefer to remain on the sidelines on Quest
Diagnostics, other medical device stocks worth a look are
). Both the stocks carry a Zacks Rank #1 (Strong Buy).
CYBERONICS INC (CYBX): Free Stock Analysis
QUEST DIAGNOSTC (DGX): Free Stock Analysis
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