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Quest Diagnostics Reports Second Quarter 2014 Financial Results
Date:7/24/2014

MADISON, N.J., July 24, 2014 /PRNewswire/ --

  • Revenues from continuing operations of $1.9 billion, up 4.8% versus prior year
  • Adjusted diluted EPS from continuing operations of $1.08, up 1.9% versus  prior year
  • Reported diluted EPS from continuing operations of $0.92, 7% below prior year
  • Cash from operations of $280 million, up 34% versus prior year
  • Full year 2014 revenues now expected to be up 2.5% to 3.5%, versus up 2% to 4% previously
  • Full year 2014 adjusted diluted EPS range narrowed to  $4.00 to $4.10 from $3.95 to $4.15 previously
  • Quest Diagnostics Incorporated (NYSE: DGX), the world's leading provider of diagnostic information services, announced today that for the second quarter ended June 30, 2014, adjusted income from continuing operations was $157 million, or $1.08 per diluted share, compared to $164 million, or $1.06 per diluted share, for 2013.

    For the second quarter of 2014, reported income from continuing operations was $133 million, or $0.92 per diluted share, compared to $152 million, or $0.99 per diluted share, in 2013. Income from continuing operations in the second quarter of 2014 was negatively impacted by $24 million, or $0.16 per diluted share, primarily related to restructuring and integration costs associated with recent acquisitions and the company's ongoing efforts to drive operational excellence and simplify the organization. In the second quarter of 2013, income from continuing operations was reduced by $0.07 per diluted share related to restructuring and integration costs.

    Revenues from continuing operations were $1.9 billion for the second quarter, 4.8% better than the prior year. Diagnostic information services revenues increased 5.3% compared to a year ago.  Volume, measured by the number of requisitions, increased 7.7% versus the prior year and revenue per requisition was 2.3% below the prior year.  Acquisitions contributed approximately 7% to revenues in the quarter and reduced revenue per requisition approximately 1%.

    For the second quarter of 2014, adjusted operating income from continuing operations was $296 million, or 15.5% of revenues, compared to $308 million, or 16.9% of revenues, for 2013. For the second quarter of 2014, reported operating income from continuing operations was $262 million, or 13.8% of revenues, compared to $289 million, or 15.9% of revenues, in 2013. Cash provided by operations was $280 million, compared to $208 million in the second quarter of 2013. Capital expenditures were $49 million in the second quarter of 2014.

    "Quest Diagnostics grew revenues 5% and increased EPS 2%, as we continued to make good progress executing our strategy, and as underlying trends improved for pricing and volume," said Steve Rusckowski, President and CEO. "We saw strong testing growth in infectious disease, prescription drug monitoring and general health and wellness, and launched our OncoVantage solid tumor cancer panel through an exclusive relationship with Memorial Sloan Kettering Cancer Center. We are on track to meet our commitments for 2014."

    First Half PerformanceRevenues from continuing operations were $3.6 billion for the first six months of 2014, 1.3% better than the prior year. Adjusted income from continuing operations was $279 million, or $1.92 per diluted share, compared to $307 million, or $1.95 per diluted share, in 2013. On a reported basis, income from continuing operations was $237 million, or $1.63 per diluted share, compared to $268 million, or $1.71 per diluted share, in 2013.

    Adjusted operating income from continuing operations for the first half of 2014 was $532 million, or 14.6% of revenues, compared to $579 million, or 16.1% of revenues, for 2013. On a reported basis, operating income from continuing operations was $470 million, or 12.9% of revenues, compared to $516 million, or 14.3% of revenues, in 2013. Cash provided by operations was $364 million, compared to $255 million in the first six months of 2013.

    Outlook for 2014For 2014, the company estimates results from continuing operations, before special items, as follows:

  • Revenues expected to increase 2.5% to 3.5% compared to the prior year, versus previous guidance of up 2% to 4%;
  • Adjusted diluted EPS to be between $4.00 and $4.10, versus previous guidance of between $3.95 and $4.15;
  • Cash provided by operations to approximate $900 million, unchanged; and
  • Capital expenditures to approximate $300 million, unchanged
  • Note on Non-GAAP Financial MeasuresAs used in this press release, the term "adjusted" refers to the operating performance measures that exclude restructuring, integration and other charges. Adjusted measures are presented because management believes those measures are useful adjuncts to reported results under accounting principles generally accepted in the United States.  Adjusted measures should not be considered as an alternative to the corresponding measures determined under accounting principles generally accepted in the United States. The attached tables include reconciliations of adjusted measures to measures reported under accounting principles generally accepted in the United States.

    Conference Call InformationQuest Diagnostics will hold its quarterly conference call to discuss financial results beginning at 8:30 a.m. Eastern Time today. The conference call can also be accessed in listen-only mode by dialing 415-228-4961, passcode 3214469. The company suggests participants dial in approximately 10 minutes before the call.  A replay of the call may be accessed online at www.QuestDiagnostics.com/investor or by phone at 888-673-3572 for domestic callers or 402-220-6435 for international callers. Telephone replays will be available from 10:30 a.m. Eastern Time on July 24 until midnight Eastern Time on August 24, 2014.

    Anyone listening to the call is encouraged to read the company's periodic reports, on file with the Securities and Exchange Commission, including the discussion of risk factors and historical results of operations and financial condition in those reports.

    About Quest DiagnosticsQuest Diagnostics is the world's leading provider of diagnostic information services needed to make better healthcare decisions. The company offers the broadest access to diagnostic testing services through its network of laboratories and patient service centers, and provides interpretive consultation through its extensive medical and scientific staff. Quest Diagnostics is a pioneer in developing innovative diagnostic tests and advanced healthcare information technology solutions that help improve patient care. Additional company information is available at QuestDiagnostics.com.

    The statements in this press release which are not historical facts may be forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date that they are made and which reflect management's current estimates, projections, expectations or beliefs and which involve risks and uncertainties that could cause actual results and outcomes to be materially different. Risks and uncertainties that may affect the future results of the Company include, but are not limited to, adverse results from pending or future government investigations, lawsuits or private actions, the competitive environment, changes in government regulations, changing relationships with customers, payers, suppliers or strategic partners and other factors discussed in the Company's most recently filed Annual Report on Form 10-K and in any of the Company's subsequently filed Quarterly Reports on Form 10-Q and  Current Reports on Form 8-K, including those discussed in the "Business," "Risk Factors," "Cautionary Factors that May Affect Future Results" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of those reports.

    This earnings release, including the attached financial tables, is available online in the Newsroom section at www.QuestDiagnostics.com.

    CONTACT: Investors: Dan Haemmerle, 973-520-2900; Media: Wendy Bost, 973-520-2800 Quest Diagnostics Incorporated and Subsidiaries
    Consolidated Statements of Operations
    For the Three and Six Months Ended June 30, 2014 and 2013
    (in millions, except per share and percentage data)
    (unaudited)Three Months Ended June 30,Six Months Ended June 30,2014201320142013Net revenues$

    1,902$

    1,815$

    3,648$

    3,602Operating costs and expenses:Cost of services

    1,1741,0942,2752,186Selling, general and administrative

    440418855866Amortization of intangible assets

    25204739Other operating expense (income), net

    1(6)1(5)Total operating costs and expenses

    1,6401,5263,1783,086Operating income262289470516Other income (expense):Interest expense, net

    (42)(40)(81)(80)Equity in earnings of equity method investees

    671213Other income, net

    344Total non-operating expenses, net

    (33)(33)(65)(63)Income from continuing operations before taxes229256405453Income tax expense8795152168Income from continuing operations142161253285Income from discontinued operations, net of taxes1333Net income142174253318Less: Net income attributable to noncontrolling interests991617Net income attributable to Quest Diagnostics$

    133$

    165$

    237$

    301Amounts attributable to Quest Diagnostics' common stockholders:Income from continuing operations

    $

    133$

    152$

    237$

    268Income from discontinued operations, net of taxes

    1333Net income

    $

    133$

    165$

    237$

    301Earnings per share attributable to Quest Diagnostics' common stockholders - basic:Income from continuing operations

    $

    0.92$

    0.99$

    1.64$

    1.72Income from discontinued operations

    0.080.21Net income

    $

    0.92$

    1.07$

    1.64$

    1.93Earnings per share attributable to Quest Diagnostics' common stockholders - diluted:Income from continuing operations

    $

    0.92$

    0.99$

    1.63$

    1.71Income from discontinued operations

    0.080.21Net income

    $

    0.92$

    1.07$

    1.63$

    1.92Weighted average common shares outstanding:Basic

    144153144155Diluted

    145154145157Operating income as a percentage of net revenues13.8

    %15.9

    %12.9

    %14.3

    % 

     Quest Diagnostics Incorporated and Subsidiaries
    Consolidated Balance Sheets
    June 30, 2014 and December 31, 2013
    (in millions, except per share data)
    (unaudited)June 30,
     2014December 31,
     2013AssetsCurrent assets:Cash and cash equivalents

    $

    144$

    187Accounts receivable, net

    963852Inventories

    10991Deferred income taxes

    164148Prepaid expenses and other current assets

    125105Total current assets

    1,5051,383Property, plant and equipment, net884805Goodwill6,0245,649Intangible assets, net1,117896Other assets227215Total assets$

    9,757$

    8,948Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable and accrued expenses

    $

    1,038$

    920Short-term borrowings and current portion of long-term debt

    220212Total current liabilities

    1,2581,132Long-term debt3,7383,120Other liabilities642723Stockholders' equity:Quest Diagnostics stockholders' equity:Common stock, par value $0.01 per share; 600 shares authorized at both June 30, 2014 and December 31, 2013; 215 shares issued at both June 30, 2014 and December 31, 2013

    22Additional paid-in capital

    2,3942,379Retained earnings

    5,5005,358Accumulated other comprehensive loss

    (8)(8)Treasury stock, at cost; 71 shares at both June 30, 2014 and December 31, 2013

    (3,796)(3,783)Total Quest Diagnostics stockholders' equity

    4,0923,948Noncontrolling interests

    2725Total stockholders' equity

    4,1193,973Total liabilities and stockholders' equity$

    9,757$

    8,948 

     Quest Diagnostics Incorporated and Subsidiaries
    Consolidated Statements of Cash Flows
    For the Six Months Ended June 30, 2014 and 2013
    (in millions)
    (unaudited)Six Months Ended June 30,20142013Cash flows from operating activities:Net income

    $

    253$

    318Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization

    156142Provision for doubtful accounts

    148139Deferred income tax benefit

    (26)(11)Stock-based compensation expense

    2517Excess tax benefits from stock-based compensation arrangements

    (3)Gain on sale of business

    (22)Other, net

    (2)(1)Changes in operating assets and liabilities:Accounts receivable

    (191)(213)Accounts payable and accrued expenses

    (39)(68)Income taxes payable

    44(35)Other assets and liabilities, net

    (4)(8)Net cash provided by operating activities364255Cash flows from investing activities:Business acquisitions, net of cash acquired

    (723)(180)Proceeds from sale of businesses

    266Capital expenditures

    (117)(105)Increase in investments and other assets

    (1)Net cash used in investing activities(841)(19)Cash flows from financing activities:Proceeds from borrowings

    1,738578Repayments of debt

    (1,159)(415)Purchases of treasury stock

    (57)(512)Exercise of stock options

    3063Excess tax benefits from stock-based compensation arrangements

    3Dividends paid

    (91)(95)Distributions to noncontrolling interests

    (14)(13)Other financing activities, net

    (13)(10)Net cash provided by (used in) financing activities434(401)Net change in cash and cash equivalents(43)(165)Change in cash and cash equivalents included in assets held for sale17Cash and cash equivalents, beginning of period187296Cash and cash equivalents, end of period$

    144$

    148Cash paid during the period for:Interest

    $

    82$

    84Income taxes

    $

    138$

    205 Notes to Financial Tables1) The computation of basic and diluted earnings per common share is as follows:Three Months Ended June 30,Six Months Ended June 30,2014201320142013(in millions, except per share data)Amounts attributable to Quest Diagnostics' common stockholders:Income from continuing operations

    $

    133$

    152$

    237$

    268Income from discontinued operations, net of taxes

    1333Net income attributable to Quest Diagnostics' common stockholders

    $

    133$

    165$

    237$

    301Income from continuing operations

    $

    133$

    152$

    237$

    268Less: Earnings allocated to participating securities

    11Earnings available to Quest Diagnostics' common stockholders - basic and diluted

    $

    133$

    152$

    236$

    267Weighted average common shares outstanding - basic

    144153144155Effect of dilutive securities:Stock options and performance share units

    1112Weighted average common shares outstanding - diluted

    145154145157Earnings per share attributable to Quest Diagnostics' common stockholders - basic:Income from continuing operations

    $

    0.92$

    0.99$

    1.64$

    1.72Income from discontinued operations

    0.080.21Net income

    $

    0.92$

    1.07$

    1.64$

    1.93Earnings per share attributable to Quest Diagnostics' common stockholders - diluted:Income from continuing operations

    $

    0.92$

    0.99$

    1.63$

    1.71Income from discontinued operations

    0.080.21Net income

    $

    0.92$

    1.07$

    1.63$

    1.92 

     

    2)
    Adjusted amounts for operating income, operating income as a percentage of net revenues, income from continuing operations attributable to Quest Diagnostics' stockholders, and diluted earnings per common share represent the Company's results before the impact of restructuring, integration and other charges. Adjusted measures are presented because management believes those measures are useful adjuncts to reported results under accounting principles generally accepted in the United States when comparing results of operations from period to period. Adjusted measures should not be considered as an alternative to the corresponding measures determined under accounting principles generally accepted in the United States. The following tables reconcile reported results to adjusted results:Three Months Ended June 30, 2014(dollars in millions, except per share data)Restructuring and Integration ChargesOtherAs Reported(a)(b)As AdjustedOperating income

    $

    262$

    27$

    7$

    296Operating income as a % of net revenues

    13.8

    %1.4

    %0.3

    %15.5

    %Income from continuing operations attributable to Quest Diagnostics' stockholders (c)

    $

    133$

    19$

    5$

    157Diluted earnings per common share

    $

    0.92$

    0.13$

    0.03$

    1.08

    (a) Represents costs primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business ($11 million in cost of services and $16 million in selling, general and administrative expenses).

    (b) Principally represents costs incurred related to the settlement of legal matters.

    (c) For the restructuring, integration and other charges, income tax benefits, where recorded, were calculated using a combined federal and state rate of 38.2%.

     

     Six Months Ended June 30, 2014(dollars in millions, except per share data)Restructuring and Integration ChargesOtherAs Reported(d)(e)As AdjustedOperating income

    $

    470$

    51$

    11$

    532Operating income as a % of net revenues

    12.9

    %1.4

    %0.3

    %14.6

    %Income from continuing operations attributable to Quest Diagnostics' stockholders (f)

    $

    237$

    34$

    8$

    279Diluted earnings per common share

    $

    1.63$

    0.24$

    0.05$

    1.92

    (d) Represents costs primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business ($23 million in cost of services and $28 million in selling, general and administrative expenses).

    (e) Principally represents costs incurred related to the settlement of legal matters.

     

    (f) For the restructuring, integration and other charges, income tax benefits, where recorded, were calculated using a combined federal and state rate of 38.2%.


     

     Three Months Ended June 30, 2013(dollars in millions, except per share data)Restructuring and Integration ChargesAs Reported(g)As AdjustedOperating income

    $

    289$

    19$

    308Operating income as a % of net revenues

    15.9

    %1.0

    %16.9

    %Income from continuing operations attributable to Quest Diagnostics' stockholders (h)

    $

    152$

    12$

    164Diluted earnings per common share

    $

    0.99$

    0.07$

    1.06

    (g) Represents costs primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business ($7 million in cost of services and $12 million in selling, general and administrative expenses).

    (h) For the restructuring and integration charges, income tax benefits were calculated using a combined federal and state rate of 38.4%.


     

     Six Months Ended June 30, 2013(dollars in millions, except per share data)Restructuring and Integration ChargesAs Reported(i)As AdjustedOperating income

    $

    516$

    63$

    579Operating income as a % of net revenues

    14.3

    %1.8

    %16.1

    %Income from continuing operations attributable to Quest Diagnostics' stockholders (j)

    $

    268$

    39$

    307Diluted earnings per common share

    $

    1.71$

    0.24$

    1.95

    (i) Represents costs primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business ($24 million in cost of services and $39 million in selling, general and administrative expenses).

    (j) For the restructuring and integration charges, income tax benefits were calculated using a combined federal and state rate of 38.4%.


     

    3)
    Other operating expense (income), net includes miscellaneous income and expense items related to operating activities. For both the three and six months ended June 30, 2013, other operating expense (income), net includes a gain of $6 million resulting from consideration associated with certain non-compete agreements.

    4)
    Other income, net represents miscellaneous income and expense items related to non-operating activities, such as gains and losses associated with investments and other non-operating assets. For the three months ended June 30, 2014, other income, net includes a gain of $2 million, associated with investments held in trusts pursuant to our supplemental deferred compensation plans. Other income, net for both the six months ended June 30, 2014 and 2013, includes gains of $4 million, associated with investments held in trusts pursuant to our supplemental deferred compensation plans.

    5)
    On April 9, 2013, the Company completed the sale of its HemoCue diagnostic products business. As a result, income from discontinued operations, net of taxes, for the three and six months ended June 30, 2013, include a gain of $13 million associated with the sale of HemoCue. In addition, income from discontinued operations, net of taxes for the six months ended June 30, 2013, includes discrete tax benefits of $20 million associated with favorable resolution of certain tax contingencies related to our NID business, which was wound down in 2006.

    6)
    For the three months ended June 30, 2014, the Company repurchased 0.4 million shares of its common stock at an average price of $57.74 per share for $25 million.  For the six months ended June 30, 2014, the Company repurchased 1.0 million shares of its common stock at an average price of $54.84 per share for $57 million.  At June 30, 2014, $771 million remained available under the Company's share repurchase authorizations.7)
    The outlook for adjusted diluted earnings per common share represents management's estimates for the full year 2014 before the impact of restructuring, integration and other charges. This measure is presented because management believes it is a useful adjunct to the corresponding amount determined under accounting principles generally accepted in the United States since it is meaningful to evaluate the Company's ongoing operating performance and is on a basis consistent with previous estimates of diluted earnings per common share.  Adjusted diluted earnings per common share is not a measure of financial performance under accounting principles generally accepted in the United States and should not be considered as an alternative to the corresponding amount determined under accounting principles generally accepted in the United States.

    The following table reconciles our 2014 diluted earnings per common share outlook, on an adjusted basis, to the corresponding amount determined under accounting principles generally accepted in the United States.  The outlook, on an adjusted basis, excludes the impact of restructuring, integration and other charges.

     Outlook for 2014 Before Special ItemsRestructuring and Integration ChargesOtherAs Reported(a)(b)As AdjustedDiluted earnings per common share

    $3.71 - $3.81$0.24$0.05$4.00 - $4.10

    (a) Represents pre-tax costs of $51 million primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business.

    (b) Represents pre-tax costs of $11 million principally related to the settlement of legal matters.

     

     

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