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Quest Q3 Revenues Slide 3 Percent; Acquires UMass Lab

NEW YORK (GenomeWeb News) – Quest Diagnostics today reported a 3 percent drop in third-quarter revenues, missing consensus Wall Street estimates.

For the quarter ended Sept. 30, the company posted $1.85 billion in revenues, down from $1.91 billion a year ago, and short of the average Wall Street estimate of $1.91 billion.

Clinical testing revenues dropped by 2 percent year over year, with volume, measured by the number of requisitions, down about 1 percent, and revenue per requisition also down 1 percent, Quest said.

During the quarter, Quest's SG&A costs shrank 3 percent year over year to $432.6 million from $446.5 million in Q3 2011.

Net income attributable to Quest slid to $163.1 million, or $1.01 per share, compared to $171.8 million, or $1.07 per share, a year ago. EPS on an adjusted basis was $1.18, unchanged from a year ago and even with Wall Street projections.

Last week Quest announced a company reorganization as part of a $500 million cost-reduction initiative launched last year. The reorganization is expected to result in layoffs of between 400 and 600 management positions by 2013, and to simplify the organizational structure by eliminating three management layers, President and CEO Steve Rusckowski said during a conference call today.

He added that for full-year 2012, company expectations for run-rate savings for the cost-reduction initiative have increased to $150 million from an earlier estimate of $100 million.

After the close of the market on Tuesday, Quest announced a definitive agreement to purchase the clinical outreach laboratory business of UMass Memorial Medical Center. In a statement, Quest said the deal "is the first step toward establishing a long-term relationship between the two organizations that could result in UMass Memorial taking a financial stake in a new entity that would develop and operate a state-of-the-art laboratory in Massachusetts in the future."

Rusckowski said today that the deal could become a model for the industry "and an opportunity for hospitals and integrated delivery networks to find a sustainable way to participate in diagnostic testing while focusing on their core competency — taking care of patients."

He did not elaborate on what that model is, but said that the purchase is an opportunity for Quest to "architect and then to eventually build that organization with a different workflow than we currently have in some of our labs, also to invest in automation and apply the principles that we applied at some of our best labs around our network."

Quest CFO Bob Hagemann added that the purchase price was less than $100 million. The deal is anticipated to close in 90 days, to add 1 percent to consolidated revenues in 2013, and to be neutral to EPS in 2013 and accretive to EPS in 2014.

For full-year 2012, Quest said that revenues are anticipated to grow .5 percent, down from an earlier estimate of between 1 and 2 percent growth. EPS is projected at between $4.45 and $4.55, down from an earlier range of $4.45 and $4.60. Capital expenditures are expected to be $180 million, compared to an earlier estimate of $200 million.

Quest ended the third quarter with $191.8 million in cash and cash equivalents.