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Quest Diagnostics' Q2 Revenues Up 1 Percent; Updates 2015 Guidance

NEW YORK (GenomeWeb) -- Quest Diagnostics today reported that its second quarter revenues were up 1 percent year over year, meeting analysts' consensus estimate.

Quest's revenues for the three months ended June 30 were $1.93 billion compared to $1.90 billion for the second quarter in 2014. The top-line figure matched Wall Street's expectation.

Quest CFO Mark Guinan noted during an earnings call that esoteric and gene-based testing had strong growth in the quarter. Revenues from the firm's diagnostics solutions business, including risk assessment testing, clinical trials testing, healthcare IT, and other products businesses, grew 11 percent compared to the prior–year Q2. Due to a joint venture with Quintiles, Guinan said this segment will likely report lower revenues in the second half of the year.

Revenues from diagnostic information services increased a fraction of 1 percent, while test volume (measured by the number of requisitions) decreased a fraction of a percent compared to the year-ago period. The company's revenue per requisition was roughly 1 percent below the figure reported in the first quarter of 2014.

Quest's net earnings for the second quarter were $118 million, or $.81 a share, compared to $133 million, or $.92 a share, in the second quarter of 2014. Earnings per share on an adjusted basis were $1.25, above the consensus analysts' estimate of $1.23 a share.

"In the second quarter we once again grew operating income faster than revenues," Quest CEO Steve Rusckowski said in a statement. "Our strategies to restore growth and drive operational excellence are delivering both a better customer experience and earnings growth."

Some industry observers believe startup Theranos could be a major competitor for lab behemoths Quest and Laboratory Corporation of America. Earlier this month, Palo Alto-based Theranos — a clinical lab that provides a large menu of blood tests at prices it claims is 50 percent below the Medicare reimbursement rate — recently garnered FDA clearance for its first test and inked a deal to provide its tests in the central Pennsylvania region coved by insurer Capital BlueCross.

Rusckowski said during the call that Capital BlueCross and Quest extended their contract earlier this year, and that the insurer has assured Quest that it remains its preferred provider and national reference lab. "I recently spoke with the CEO [Gary Hilaire] and he did note that the arrangement they have with Theranos does not change in any aspect the agreement they have with Quest," Rusckowski said during the earnings call.

Rusckowski and Guinan also noted that Quest is well positioned in terms of test pricing and has been transparent about that in states such as Arizona, where consumers can directly order lab tests without a prescription. Rusckowski estimated that tests performed by hospitals sometimes cost two to five times as much as Quest. The number of people with insurance is growing under the Affordable Care Act, and so "a portion of what we do doesn't have out-of-pocket cost to consumers," he said. "So, how this pans out in terms of what the consumer will actually pay and how our prices affect general visibility and transparency of pricing, we'll see."

"You should have confidence we have a good handle on this," Rusckowski told investors during the earnings call.

Quest's selling, general, and administrative expenses in the second quarter was $429 million compared to $440 million in Q2 2014.

The firm ended the quarter with $150 million in cash and cash equivalents.

Quest also updated its revenue guidance to reflect the clinical trials joint venture with Quintiles aimed at advancing its clinical trials business for drug developers. The companies announced in July the official launch of the joint venture, called Q2 Solutions, of which Quintiles own 60 percent and Quest owns 40 percent.

Quest expects revenues for 2015 to be between $7.49 billion and $7.57 billion and adjusted earnings per share of between $4.70 and $4.85.